Lewis Enterprises is considering a new credit standards to increase its currently sagging sales. As...
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Lewis Enterprises is considering a new credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to decrease by 10% from 20,000 to 18,000 units during the coming year; the average collection period is expected to decrease from 60 to 45 days; and bad debts are expected to decrease from 3% to 1% of sales. The sale price per unit is $40, and the variable cost per unit is $31. The firm's required return on equal-risk investments is 25%. Evaluate the proposed plan, and make a recommendation to the firm. Show your solution. (Note: Assume a 365-day year.)
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