QUESTION TWO Lower Kabete 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 10% from 10,000 to 11,000 units during the coming year, the average collection period is expected to increase from 45 to 65 days; and bad debts are expected to increase from 1% to 3% of sales. The sales price per unit is Sh 4000, and variable cost per unit is Sh.3,100. The firm's required return on equal risk investments is 25%. (a) Required: Evaluate the proposed relaxation, and make a recommendation to the firm. (10 Marks) Page 4 of 6