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 10% from 13,000 to 14,300 units during the coming year; the average collection period is expected to increase from 45 to 65 days; and bad debts are expected to increase from 11% to 33% 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 25.3%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.) The additional profit contribution from an increase in sales is?
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 10% from 13,000 to 14,300 units during the coming year; the average collection period is expected to increase from 45 to 65 days; and bad debts are expected to increase from 11% to 33% 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 25.3%. Evaluate the proposed relaxation, and make a recommendation to the firm. (Note: Assume a 365-day year.) The additional profit contribution from an increase in sales is?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text: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 10% from 13,000 to 14,300 units during the coming
year; the average collection period is expected to increase from 45 to 65
days; and bad debts are expected to increase from 11% to 33% 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 25.3%.
Evaluate the proposed relaxation, and make a recommendation to the firm.
(Note: Assume a 365-day year.) The additional profit contribution from an
increase in sales is?
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