Natural Juice Manufacturing Company (NJMC) produces and sells a variety of fruit juices to hotels nationwide. NJMC charges a flat rate of $20 per bottle and all its sales are on credit. Hotels are granted credit based on a scoring process. With its existing credit standard, NJMC expects to sell 120,000 bottles over the coming year, yielding total sales of $2,400,000. Its variable cost is $12 per bottle and NJMC has a fixed cost of $240,000 per year.

NJMC is contemplating a relaxation of its credit standards and expects the following effects:

1. A 5% increase in sales to 126,000 juice bottles

2. An increase in the average collection period of 30 days (the current level) to 45 days

3. An increase in bad debt expense from 1% (the current level) to 2% of sales

NJMC plans to keep the product selling price unchanged at $20 per bottle. The required return on investment of equal risk is 12%.

Evaluate whether NJMC should relax its credit standards.