annual sales modern company

December 14, 2020

Annual sales of Modern company is 16000 units @ Rs. 50 per unit. Its variable cost is Rs. 30 per unit and fixed cost Rs. 160000 per year. The company is considering to relax its credit policy. This will increase its sales by 20% and average collection period will increase from 30 days to 45 days. Bad debts are expected at 3% on increase in sales and collection charges will increase by Rs. 20000. If required rate of return on investments is 15% after tax and rate of tax is 40%. Will it be fair to relax the credit policy?