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 14,000 to 15,400 units during the coming? year; the average collection period is expected to increase from 45 to 55 days; and bad debts are expected to increase from 2.5?% to 44% of sales. The sale price per unit is $38?, and the variable cost per unit is $28.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.)
The additional profit contribution from an increase in sales is
The amount of cost that will be saved due to the reduction in average? A/R is
The net profit from the proposed cash discount is