The Dream Corp has annual credit sales of $2.5 million. Current expenses for the collection department are $40,000, bad-debt losses are 1.00%, and the days sales outstanding is 25 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $28,000 per year. The change is expected to increase bad-debt losses to 2.5% and to increase the days sales outstanding to 61 days. In addition, sales are expected to increase to $2.8 million per year. Should the firm relax collection efforts if the opportunity cost of funds is 16%, the variable cost ratio is 75%, and taxes are 25%?

No, profits fall by $19,075

No, profits fall by $7.963

Yes, profits grow by $4796

Yes, profits grow by $9860