BlackX Inc. sells its stainless steel products on terms of 2/10, net 40. BlackX Inc. is considering granting credit to retailers with total assets as low as $500,000. Currently the lowest asset limit is $750,000. BlackX Inc. believes sales will increase $8 million from the new credit group but the average collection period for this new group will be 70 days versus the current average collection period of 40 days. If management estimates that 30% of the new customers will take the cash discount; but 10% of the new business will be written off as bad-debt loss.

Assume BlackX Inc. variable cost ratio is 0.65 and its required pretax rate of return on current assets investment is 12%. BlackX Inc. also estimates that an additional investment in inventory of $500,000 is necessary for the anticipated sales increase.

Should BlackX Inc. lower its credit standards? Show computations.