Charles Corporation sells its product for $50/unit with variable costs at $29/unit. Its fixed costs are $250,000 a year. If Charles Corporation relaxes its credit standards it expects the following effects: a 13% increase in unit sales; an increase in the average collection period from 29 days to 37 days, inventory level will increase from $30,330 to $41,200, and an increase in bad debt expense from 2 to 3.5% of sales. Charles Company currently sells 27,000 units all on credit and has a required return on investment of 14%. Required: Assess the costs & benefits of the proposed decision. Based on your assessment should the company relax its credit standards? Assume a 365-day year. (Round your numbers to one dollar)
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