A firm is contemplating shortening its credit period from 40 to 30 days and believes that,...

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A firm is contemplating shortening its credit periodfrom 40 to 30 days and believes that, as a result of this change,its average collection period will decline from 45 to 36 days.Bad-debt expenses are expected to decrease from 1.5% to 1% ofsales. The firm is currently selling 12,000 units but believes thatas a result of the proposed change, sales will decline to 10,000units. The sale price per unit is $56, and the variable cost perunit is $45. The firm has a required return on equal-riskinvestments of 25%. Evaluate this decision, and make arecommendation to the firm. (Note: Assume a 365-dayyear.)

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A firm is contemplating shortening its credit periodfrom 40 to 30 days and believes that, as a result of this change,its average collection period will decline from 45 to 36 days.Bad-debt expenses are expected to decrease from 1.5% to 1% ofsales. The firm is currently selling 12,000 units but believes thatas a result of the proposed change, sales will decline to 10,000units. The sale price per unit is $56, and the variable cost perunit is $45. The firm has a required return on equal-riskinvestments of 25%. Evaluate this decision, and make arecommendation to the firm. (Note: Assume a 365-dayyear.)