Forrester Fashions has monthly credit sales of 23,000 units with an average collection period of 64 days. The company has a per-unit variable cost of 23 and a per-unit sale price of 32. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would increase the average collection period to 86 days and would increase bad debts to 7% of sales, which would rise to 34,500 units per month. Forrester's cost of capital is 1.1% per month. Show all necessary calculations needed to evaluate Forrester's proposed relaxation of credit standards. (Note: Assume a 365-day year.)

a. The additional profit contribution from an increase in sales is $? (Round to the nearest dollar.

b. The cost from the increased marginal investment in A/R is $? (Round to the nearest dollar.)

c. The cost from the increase in bad debts is $? (Round to the nearest dollar.)

d.The net profit or loss from implementing the proposed plan is $? (Round to the nearest dollar. Enter a negative number for a loss.)

e. Is the proposed plan recommended?

Yes

No