The present credit terms of Creation Ltd. are 1/10 net 30. Its annual sales80 Lakhs, its average collection period is 20 days, its variable costs and average total costs to sales are0.85 and .95 respectively and its cost of capital is 10%. The proportion of sales on which customer currently take discount is 0.5. Creation Ltd. is considering relaxing its discount terms to 2/10, net 30. Such relaxation is expected to increase sales by5 Lakhs, reduce the average collection period to 14 days and increase the proportion of discount sales to 0.8. What will be the effect of relaxing the discount policy on Company’s profit? Take an year as of 360 days.
can u give me the solution of this problem????????????????
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CAclubindia
