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Jonah's Boats, Inc. is considering relaxing its credit standards in order to meet a competitor's change in credit policy. As a result of the proposed change, sales during the coming year are expected to increase 15%, from 5,000 boats to 5,750 boats, the average collection period is expected to increase from 35 days to 45 days, and bad debts are expected to increase from 2% to 3%. The average sale price per unit is $1,000 and the variable cost per unit is $850. The firm's required return on investment is 10%.

Evaluate the proposed change in credit standards and make a recommendation to the firm.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9403747

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