Muncie Manufacturing is considering increasing its collection period by 25 days in hopes of attracting additional sales. Muncie currently has annual sales of $500000. They expect revenues to increase $25000 per year and expenses to increase by $10000 per year. Muncie believes that an additional $3000 will go uncollected each year as a result of this change in policy. This $3000 loss will have to be replaced each year to keep the account receivable balance at the increased 25-day level. They project that they will be able to collect 90% of the outstanding balance at the end of year 4 (after replacement). Using a 4-year life 40% tax rate and 10% required return is the investment attractive?
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