Mike's Widgets, Inc. is considering relaxing its credit standards in order to meet a competitor’s change in credit policy. As a result of the change, next year’s sales are expected to increase 15% from 5,000 widgets to 5,750 widgets, the average collection period is expected to increase from 45 days to 60 days and bad debt expense is expected to increase from 2% of sales to 2.5% of sales. The average sales price per unit is $1,000 and the variable cost per unit is $850. The firm’s required return on investment is 10%. Use 365 days / year.
How would I figure out the average and marginal investments in A/R under the proposed and present plans?