Shortening the credit periodA firm is contemplating shortening its credit period from

30 to 20 days and believes that, as a result of this change, its average collection period will decline from 35 to 25 days. Bad-debt expenses are expected to decrease from 1.4% to 1.1% of sales. The firm is currently selling 12,400 units but believes that as a result of the proposed change, sales will decline to 10,300 units. The sale price per unit is $54, and the variable cost per unit is $46. The firm has a required return on equal-risk investments of 24.3%. Evaluate this decision, and make a recommendation to the firm.

(Note: Assume a 365-day year.)

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Part 1

The reduction in profit contribution from a decline in sales is $enter your response here.(Round to the nearest dollar. Enter as a negative number.)

Part 2

The benefit from the reduced marginal investment in A/R is $enter your response here. (Round to the nearest dollar.)

Part 3

The cost savings from the reduction in bad debts is $enter your response here.

(Round to the nearest dollar.)

Part 4

The net profit or loss from implementing the proposed plan is $enter your response here.

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

Part 5

Is the proposed plan recommended?

Yes

No