Caren's Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase
15 percent from 300 canoes per year to 345 canoes per year. The average collection period is expected to increase to 40 days
from 30 days and bad debts are expected to double the current 1 percent level. The price per canoe is $850, the variable cost per canoe is $650 and the average cost per unit at the 300 unit level is $700. The firm's required return on investment is 20 percent.
-What is the net result of implementing the proposed plan?
A) +$2,083
B) +$3,952
C) -$3,868
D) -$2,083

Question

Quizplus · Accepted Answer

The net result of implementing the proposed plan is an increase in net income of $2,083. This is because the increase in sales will lead to an increase in profits, while the increase in collection period and bad debts will lead to a decrease in profits. However, the increase in profits will be greater than the decrease in profits, resulting in an overall increase in net income.

Caren's Canoes Is Considering Relaxing Its Credit Standards to Encourage