Parsons Canoes is reevaluating its credit policy. Current terms are 2/10, net 30, resulting in annual credit sales of 200,000 units. 70% qualify for the discount by paying on the 10thday, and the other 30 percent pay, on average in 40 days. Unit sales price is $30 and variable production costs are $20 per unit. Bad Debts are 1.5% of credit sales.

The new policy of 3/10, net 90 is expected to increase sales by 15% annually. Those qualifying for the discount by paying in 10 days would drop to 40%; the other 60% would, on average, pay in 80 days. It is expected that variable production costs would remain at $20 per unit but that bad debt expense would increase to 3.5% of credit sales.

Parsons's banker would continue to finance working capital requirements at 10%. Should the new policy be adopted?