Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $180,000 in additional credit sales, 12% are likely to be uncollectible. The company will also incur $16,200 in additional collection expenses. Production and marketing costs represent 72 percent of sales. The firm is in a 34% tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10% desired return. Assume the average collection period is 120 days.

Question 2 a) Compute the financial benefits of this credit decision.

Question 2b) Compute the incremental expenses of this credit decision.

Question 2 c) Calculate the rate of return on this investment.

Question 2d) Based on the stated desired rate of return, provide a recommendation on whether to proceed. Give your reason.