Relaxation of credit standards Farmers World, a firm specializing in fertilizers, is evaluating a proposal to relax the credit standards to increase sales. The implementation of this plan is expected to increase sales by 10% from 15,500 to 17,050 units! in the following year. The average collection period will increase from 30 to 45 days, and bad debts are expected to increase from 2% to 5% of sales. The selling price per bag is $15, and the variable cost per bag is $12. The required rate of return on equal-risk investments is 22%. Evaluate the proposed relaxation, and make a recommendation to the firm.(Note: Assume a 365-day year.)

Answer rating: 100% (QA)

Here is the analysis of the proposed relaxation of credit standards by Farmers World Increase in sales The relaxation of credit standards is expected ... View the full answer