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Forrester Fashions has monthly credit sales of 30,000 units with an average collection period of 58 days. The company has a per-unit variable cost of
Forrester Fashions has monthly credit sales of 30,000 units with an average collection period of 58 days. The company has a per-unit variable cost of 20 and a per-unit sale price of 31 . Bad debts currently are 4.5% of sales. The firm estimates that a proposed relaxation of credit standards would increase the average collection period to 87 days and would increase bad debts to 7.5% of sales, which would rise to 45,000 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.) The additional profit contribution from an increase in sales is $ (Round to the nearest dollar.) The cost from the increased marginal investment in A/R is $ (Round to the nearest dollar.) The cost from the increase in bad debts is $. (Round to the nearest dollar.) The net profit or loss from implementing the proposed plan is \$_ (Round to the nearest dollar. Enter a negative number for a loss.) Is the proposed plan recommended? (Select from the drop-down menu)
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