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A firm is contemplating shortening its credit period from 40 to 30 days and believes that...

A firm is contemplating shortening its credit period from 40 to 30 days and believes that as a result of this change, its average collection period will decline from 45 to 36 days. Bad debt expenses are expected to decrease from 1.5% to 1% of sales. The firm is currently selling 12,000 units but believes that as a result of the proposed changes, sales will decline to 10,000 units. The sale price per unit of $56, and the variable cost per unit is $45. The firm has a required return on equal-risk investment of 25%. Evaluate this decision and make a recommendation to the firm. (Note: Assume a 365-day year)

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