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 10,000 to 12,000 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 $44,
and the variable cost per unit is $33. The firm's required return on equal risk investments
is 9.1%. Evaluate the proposed relaxation, and make a recommendation to the firm.
(Note: Assume a 365-day year
1.) The additional profit contribution from an increase in sales is (round to the nearest
dollar)
2.) The cost from the increased marginal investment in A/R is_ (round to the nearest
dollar)
3.) The cost from the increase in bad debts is _(Round to the nearest dollar)
4.) The net profit or loss from implementing the proposed plan is (round to the nearest
dollar)