The current sales of BW ltd are $200 000. The company grouped its customers into four categories A to D. Credit rating falls as one goes from category A to D. BW ltd presently extends unlimited credit to customers in category C and D, limited credit to customers in category A and no credit to customers in category B. As a result of this credit policy, the BW ltd is foregoing sales to the extent of $2000 to customers in category D. The firm is considering the adoption of a liberal policy under which customers in category A would be extended unlimited credit and customers in category B would be extended limited credit. Such relaxation would increase the sales by $30000 on which bad debts losses would be 8%. The contribution margin ratio (1-V) for the firm is 15%, average collection period (ACP) is 35 days, and the after-tax cost of capital (k) is 12%. The tax rate is 30%.

Required:

Advise whether BW ltd should change its credit standards.