Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed? relaxation, sales are expected to increase by 10?% from 12,000 to 13,200 units during the coming? year; the average collection period is expected to increase from 40 to 55 days; and bad debts are expected to increase from 1?% to 3?% of sales. The sale price per unit is $44?, and the variable cost per unit is $32.
The? firm's required return on? equal-risk investments is 24.5?%.
Evaluate the proposed? relaxation, and make a recommendation to the firm.
?(?Note: Assume a? 365-day year.)