Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase by

20%

from

15,000

to

18,000

units during the coming year; the average collection period is expected to increase from

50

to

65

days; and bad debts are expected to increase from

1.5%

to

3.5%

of sales. The sale price per unit is

$40,

and the variable cost per unit is

$28.

The firm's required return on equal-risk investments is

10.9%.

Evaluate the proposed relaxation, and make a recommendation to the firm.

(Note:

Assume a 365-day year.)