Use the following information to answer the next six questions:

Regency Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs 72,000 rugs per year at an average price of $132 each. Bad-debt expenses are 1% of sales, the average collection period is 40 days, and the variable cost per unit is $28. Regency expects that if it does relax its credit standards, the average collection period will increase to 48 days and that bad debts will increase to 1% of sales. Sales will increase by 4,000 repairs per year. The opportunity cost of funds is 14%.

7. Use the Income Statement Approach to find the incremental bad debt losses.

8. Use the Income Statement Approach to find the incremental cost of carrying receivables.

9. Use the Income Statement Approach to find the incremental pre-tax profits from this proposal.

10. Use the Incremental Analysis Approach to find the incremental bad debt losses.

11. Use the Incremental Analysis Approach to find the incremental cost of carrying receivables.

12. Use the Incremental Analysis Approach to find the incremental pre-tax profits from this proposal.