Reference no: EM132679343

Regency Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs 7200 rugs per year at an average price of $76 each. Bad-debt expenses are 1% of sales, the average collection period is 40 days and the variable cost per unit is $42. Regency expects that if it does relax its credit standards, the average collection period will increase to 48 days and that bad debts will increase to 1 ½ percent of sales. Sales will increase by 400 repairs per year. If the firm has a required rate of return on equal-risk investments of 14%, what recommendations would you give the firm? Use your analysis to justify your answer and show your workings. (Note: Use a 365-day year.)