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

Relaxation of credit standards 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 5% from 12,000 to 12,600
units during the coming year; the average collection period is expected to increase from 35 to 50 days; and bad debts
are expected to increase from 2% to 3.5% of sales. The sale price per unit is $37, and the variable cost per unit is
$28. The firm's required return on equal-risk investments is 24.9%. Evaluate the proposed relaxation, and make a
recommendation to the firm. (Note: Assume a 365-day year.)
The additional profit contribution from an increase in sales is $.(Round to the nearest dollar.)
The cost from the increased marginal investment in AR is $.(Round to the nearest dollar.)
The cost from the increase in bad debts is $.(Round to the nearest dollar.)
The net profit or loss from implementing the proposed plan is $.(Round to the nearest dollar. Enter a negative
number for a loss.)
Is the proposed plan recommended?
(Select from the drop-down menu.)
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