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KBR, Inc., operates in energy sector. The firm is affected by the oil price plunge. The manager is contemplating lengthening its credit period from the existing net 30 terms to net 50 terms. Ali, the credit analyst needs your help to review the effects of the proposed credit change on the shareholder value. He gathers the following information. The variable costs, as a percent of sales, equals 65%. Ali estimates the additional sales to be $5 million. The existing annual sales equal $50 million. The existing bad debt loss rate is 5%. This bad debt will increase by 1% after lengthening the credit period. The existing credit \& collection expenses equal 2% of sales and those under 60 day terms will be 2.5% of sales. The company's annual cost of capital is presently 10 4 percent. Under the new credit policy, the firm offers a 2% cash discount if they pey with 10 days. The percent of sales made to cash discount-takers will be 20%. 1) Calculate the NPV of one day's sales under the new credit policy. (2 points) 2) Calculate the NPV of one day's sales under the existing credit policy. (2 points) 3) Calculate the NPV. (2 points) 4) Do you recommend lengthening the credit period? Why? (2 points)