[reza88]

Slow Moving Enterprise is now thinking of changing its credit terms. Currently, it has credit sales of rm 100000 per year and an average collection period of 45 days. The changes will result in a 25 increase in sales and a 20% increase in the average collection period. Due to the changes the bad debt is expecting to decrease from 2% to 1% of sales. The variable cost is 40% and the firm's equal risk opportunity cost its investment in account receivable is 20%

From the above information you are required to:

A) calculate the additional profit contribution from new sales that the firm will realize if it makes the proposed change?

B) Based on your calculation at (a), should the firm implement the propose change? Explain your answer?