Relaxation of credit standardsLewis 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

15%

from

14,000

to

16,100

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

35

to

55

days; and bad debts are expected to increase from

3%

to

5%

of sales. The sale price per unit is

$36,

and the variable cost per unit is

$24.

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.)