The credit evaluation officer of Jeedi & Company had to decide on a proposal for relaxing the credit, which would result in cutting down the processing pace of the average collection period from 1/12 of the year to 2/12 of the year. The company's selling price, variable cost, and total average cost per unit are Rs. 30, Rs. 23, and Rs. 25 respectively. The relaxation in the credit policy was expected to increase the level of sales to 125% of the existing sales, and the sales after the increase would be Rs. 3 million. The collection charges will also be increased from Rs. 0.1 million to Rs. 0.14 million. The relaxation in the credit policy will also increase the bad debt losses from 1% to 3%. The cost of additional inventory would be Rs. 0.05 million because of the increase in sales level. The corporate manager aimed at a return of 25% on investment or borrowing.
REQUIRED: You are required to make relevant calculations to help the credit manager in examining the financial implications of liberalizing the credit policy.