Question

A trader whose current sales are Rs. 5 lakhs per annum and average collection period is 30 days wants to pursue a more liberal credit policy to improve sales. A study made by a consultant firm reveals the following information: - Increasing the collection period by 15 days will result in an increase in sales by Rs. 60,000. - Increasing the collection period by 30 days will result in an increase in sales by Rs. 90,000. The selling price per unit is Rs. 5, the average cost per unit is Rs. 4, and the variable cost per unit is Rs. 2.75. The required rate of return on additional investments is 20 percent. Assume 360 days in a year and no bad debts. Which of the above policies would you recommend for adoption?

          A trader whose current sales are Rs. 5 lakhs per annum and average collection period is 30 days wants to pursue a more liberal credit policy to improve sales. A study made by a consultant firm reveals the following information: 
    - Increasing the collection period by 15 days will result in an increase in sales by Rs. 60,000.
    - Increasing the collection period by 30 days will result in an increase in sales by Rs. 90,000.
    The selling price per unit is Rs. 5, the average cost per unit is Rs. 4, and the variable cost per unit is Rs. 2.75. The required rate of return on additional investments is 20 percent. Assume 360 days in a year and no bad debts. Which of the above policies would you recommend for adoption?

Added by Michael J.

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