Candy Cane Limited is revaluating its credit policy. Current terms are 2/10 net 30, resulting in annual sales of 500,000 units. Cash sales that qualify for the discount account for 10 percent of sales; 35 percent qualify for the discount by paying on the 10th day; and the other 55 percent pay, on average in 35 days. Unit sales price is $25 and variable production costs are $20 per unit. Bad debts are 2 percent of credit sales.

The new policy of 2/10, net 60 is expected to increase sales by 15 percent annually.

Cash sales are expected to remain at 10 percent of sales, but those qualifying for the discount by paying in 10 days would increase to 40 percent, the other 50 percent would on average, pay in 70 days. It is expected that variable production costs would remain at $20 per unit, but bad debt expense would increase to 3 percent of credit sales. Candy Cane Ltds bank would continue to finance working capital requirements at 15 percent.

Advise Candy Cane Limited on whether or not they should implement the new policy and indicate the reason for your recommendation.