Relaxation of credit standards. Lewis Enterprises is considering relaxing its credit standards to increase its currently sagging sales. As a result of the proposed? relaxation, sales are expected to increase by 20?% from 15,000 to 18,000 units during the coming? year; the average collection period is expected to increase from 35 to 55 ?days; and bad debts are expected to increase from 1.5?% to 3.5?% of sales. The sale price per unit is $45?, and the variable cost per unit is $34. The? firm's required return on? equal-risk investments is 25.5?%. Evaluate the proposed? relaxation, and make a recommendation to the firm.
?(?Note: Assume a? 365-day year.)
50 to 65 days; and bad debts are expected to increase from 2.5?% to 4.5?% of sales. The sale price per unit is $35, and the variable cost per unit is $23.
The? firm's required return on? equal-risk investments is 24.9?%. Evaluate the proposed? relaxation, and make a recommendation to the firm.(Note: Assume a? 365-day year.)
a) The additional profit contribution from an increase in sales is ?$ ?(Round to the nearest? dollar.)
b) The cost from the increased marginal investment in? A/R is ?$ ?(Round to the nearest? dollar.)
c) The cost from the increase in bad debts is ?$ ?(Round to the nearest? dollar.)
d) The net profit or loss from implementing the proposed plan is ?$ ?(Round to the nearest dollar. Enter a negative number for a? loss.)
e) Is the proposed plan? recommended?