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Q6. 6. In order to increase sales and to motivate customers to buy...

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Finance

Q6.

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6. In order to increase sales and to motivate customers to buy on credit terms, a company is planning to relax its credit policy of net 30. Fixed cost is Rs. 50,000 currently and is expected to remain same for all levels of sales. Variable costs are 75 percent of sales. The incremental sales are expected to be on credit basis. For the perceived increase in risk in liberalizing the credit terms, the company requires higher required return. Bad debts are likely to arise on incremental credit sales. If the following information is projected, which of the following credit policy should the company adopt? Credit Required Collection Incremental Bad Debts Policy Return Period Sales A 20% 40 3,00,000 10,000 B 25% 45 4,00,000 15,000 Assume 360 working days in an year. (10) 61 Page

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