Keystone Flooring is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from $1,000,000 per year to $1,150,000 per year. The average collection period is expected to increase to 75 days from 65 days and bad debts are expected to double the current 2 percent level. The variable cost ratio is 75%, and the required rate of return on receivables investment is 20%. The firm does not expect any change in inventories. What is the net increase in profits as a result of implementing the proposed plan? (Assume a 365-day year)
a) $11,602
b) $10,849
c) $2,767
d) $25,767