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 30 to 45days; and bad debts are expected to increase from 1% to 3% 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 10.3%. Evaluate the proposedrelaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.

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 30 to 45days; and bad debts are expected to increase from 1% to 3% 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 10.3%. Evaluate the proposedrelaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 15P

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