The firm has $600,000 in sales and $425,000 in variable costs. A proposed change in credit terms is expected to increase sales to $685,000. The new credit policy assumes a 365-day year and the lengthening of credit period from 30 days to 60 days. All clients will pay on the net date. Bad debt expenses would increase from 1.1% of sales to 1.6% of sales. The required rate of return on equal-risk investment is 17%.

(A)Calculate the additional profit contribution from sales under the proposed credit policy.

(B)Calculate the cost of the marginal investment in accounts receivable.

(C)Calculate the cost of the marginal bad debts.

(D)Discuss why or why not you would recommend the change in credit policy.