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3c. Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected
3c. 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 10,000 to 11,000 units during the coming year; the average collection period is expected to increase from 45 to 60 days; and bad debts are expected to increase from 1% to 3% of sales. The sale price per unit is RM40, and the variable cost per unit is RM31. The firm's required return on equal-risk investments is 10%. (Note: Assume a 365 -day year.) i. What is the additional profit contribution margin? (6 marks) 7/8 BQC7008 ii. What is the cost of marginal investment in A/R? ( 8 marks) iii. What is the cost of debt? (6 marks) iv. What is the profit or lost in implementing this proposal
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