Chapter 12 Current asset Management Class exercise 15 September 2021 B1 (Pty) Limited, has annual credit sales of NS 20 million. The present credit terms are 2/10, net 50. All sales are on credit and at the present 50% of the customers use the early settlement discount of 2%. The average collection period is 30 days and bad debts losses currently stand at 3% of sales for which discounts are not taken. During a board meeting it was resolved to change the company's credit policy. The proposal is to amend the credit terms to 3/10, net 30. It is envisaged under the new policy that 60% of the customers are expected to use the early settlement discount with the average collection period expected to decrease to 18 days. Bad debts are expected to decline to 2% of sales for which discounts are not taken. Sales is expected to decrease by N$ 2 million to N$ 18 million. The gross profit margin will remain unchanged at 25%. Assume that there are 360 days in a year. REQUIRED: a) Calculate the impact of the change in credit policy would have on net profit. b) Calculate the effective cost of trade creditor finance.

pur-new-sol

Related Questions