Karen's conoes is considering relaxing its credit standards to encourage more sales. as a result, sales are expected to increase 15% from 300 conoes per year to 345 conoes per year. The average collection periods expected to increase to 40 days from 30 days and bad debts are expected to double the current level (as a % of sales). In order to support the higher sales level, an increase in the level of inventory will be necessary. The firm's required return on investment is 20% and their inventory turnover is 3 times.

The standard cost data per canoe is shown below.

sales price	300.00
cost of goods sold:
Material	100.00
labor	70.00
Overdead (20% is variable)	25.00
Selling expense (all variable)	15.00
Collection expense (50% variable)	10.00
Admin. expense (all fixed)	40.00
Bad debt	6.00
Profit per canoe	34.00

What is the expected change in before-tax profit for the proposed change in credit standard? The following information may be used in your analysis.

1. sales occur evenly throughout the year.

2. the firm is currently operating under-capacity.

3. Change in the inventory investment = ((change in annual sales*COGS%)/annual inventory turnover) * K