1. Kari-Kidd Corporation currently gives credit terms of net 30 days. It has $60 million in credit sales, and its average collection period is 45 days. To stimulate demand, the com- pany may give credit terms of net 60 days. If it does instigate these terms, sales are expected to increase by 15 percent. After the change, the average collection period is expected to be 75 days, with no difference in payment habits between old and new cus- tomers. Variable costs are $0.80 for every $1.00 of sales, and the company's before-tax required rate of return on investment in receivables is 20 percent. Should the company extend its credit period? (Assume a 360-day year.) 2. Matlock Gauge Company makes wind and current gauges for pleasure boats. The gauges are sold throughout the Southeast to boat dealers, and the average order size is $50. The company sells to all registered dealers without a credit analysis. Terms are "net 45 days," and the average collection period is 60 days, which is regarded as satisfactory. Sue Ford, vice president of finance, is now uneasy about the increasing number of bad-debt losses on new orders. With credit ratings from local and regional credit agencies, she feels she would be able to classify new orders into one of three risk categories. Past experience shows the following