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 20% from

15,000 to 18,000 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

1.5% to 3.5% of sales. The sale price per unit is $45, and the variable cost per unit is $34. The firm's required return on equal-risk investments is 25.5%. Evaluate the proposed relaxation, and make a recommendation to the firm.

(Note: Assume a 365-day year.)

50 to 65 days; and bad debts are expected to increase from 2.5% to 4.5% of sales. The sale price per unit is $35, and the variable cost per unit is $23.

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.)

a) The additional profit contribution from an increase in sales is $

(Round to the nearest dollar.)

b) The cost from the increased marginal investment in A/R is $

(Round to the nearest dollar.)

c) The cost from the increase in bad debts is $

(Round to the nearest dollar.)

d) The net profit or loss from implementing the proposed plan is $

(Round to the nearest dollar. Enter a negative number for a loss.)

e) Is the proposed plan recommended?