A Firm Is Considering Relaxing Credit Standards Which Will Result

Multiple Choice

A firm is considering relaxing credit standards which will result in an increase in annual sales from$3 million to $3.75 million, a decrease in the cost of annual sales from $2,225,000 to $2,000,000, anincrease in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 days, from 20 to 35 days. The bad debt loss is expected to increase from 1 percent to 1.5 percent of sales. The firm's required return on investments is 15 percent. The net result of the firm relaxing its credit standards is ___________.

A) -$16,875
B) -$26,875
C) $10,000
D) -$16,250