Mr. Binit, Finance manager of S Ltd. is evaluating the present credit policy of his company. Under the present policy, the company is offering 3% discount for payment within 10 days. The analysis of accounts receivable shows an average collection period of 30 days. Mr. Binit is of the opinion that the discount should be discounted as it is affecting the profitability of the company in the present scenario of rising manufacturing costs. It is estimated that if the discount is discontinued the average collection period would increase to 35 days. Presently 30% of the total customers are availing of a discount and if the discount is withdrawn, these customers can also be expected to pay along with the other customers. The marketing manager informed him that as a result sales might drop from 2,10,000 units to 2,00,000 units per year. The selling price per unit is Rs.45. The average cost per unit is Rs.50 and the variable cost-to-sales ratio is 75%. The required rate of return on the company`s investment is:

Which of the following statement is true?
a) As the change in profit is negative, Mr. Binit should not go for a withdrawal discount
b) As the change in profit is negative, Mr. Binit should go for a withdrawal discount
c) As there is no change in profit change in profit is negative, Mr. Binit should go for withdraw
discount
d) As change in profit is positive , Mr. Binit should go for withdrawing discount
Increase in investment receivables is:
a) Rs.1,12,500
b) Rs.1,12,550
c) Rs.1,13,500
d) Rs.1,31,250
 The loss of contribution due to an increase in sales is_______.
a) Rs.1,13,500
b) Rs.1,14,500
c) Rs.1,12,500
d) Rs.1,15,500
Savings in receivables investment due to a decrease in sales will be_______.
a) Rs.32,480.50
b) Rs.32,812.50
c) Rs.31,812.50
d) Rs.32,012.50
The cost of financing the increased investment in receivables will be________.
a) Rs.29,687.50
b) Rs.9,687.50
c) Rs.19,687.50
d) Rs.11,687.50

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a As the change in profit is negative M... View the full answer