Relaxation of credit standards.
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 20?% from 12,000 to 14,400 units during the coming? year; the average collection period is expected to increase from 30 to 50 ?days; and bad debts are expected to increase from 2.5?% to 4?% of sales. The sale price per unit is $ 37, and the variable cost per unit is $ 26 The? firm's required return on? equal-risk investments is 24.6?%. Evaluate the proposed? relaxation, and make a recommendation to the firm. ?(?Note: Assume a? 365-day year.)