Seamols Ltd. has reached a sales level of Rs 48 lacs and it extends a credit...

 

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Seamols Ltd. has reached a sales level of Rs 48 lacs and it extends a credit of 90 days to its customers. However, in order to overcome the financial difficulties, it is considering to change the credit policy. The proposed terms of credit and expected sales are given as under: Credit Policy I 11 ||| IV V Terms (No.of Days) 75 60 45 30 15 Sales (Rs.Lacs) 45 43 40 35 32 The firm has a variable cost of 80% and a fixed cost of Rs. 500,000/-. The cost of capital is 16%. Evaluate the above policies and suggest the one that should be adopted. Assume 360 days in a year. (20 marks) Average age of receivables can play an effective yardstick in understanding the financial efficiency of a business. Comment.(10 marks) Seamols Ltd. has reached a sales level of Rs 48 lacs and it extends a credit of 90 days to its customers. However, in order to overcome the financial difficulties, it is considering to change the credit policy. The proposed terms of credit and expected sales are given as under: Credit Policy I 11 ||| IV V Terms (No.of Days) 75 60 45 30 15 Sales (Rs.Lacs) 45 43 40 35 32 The firm has a variable cost of 80% and a fixed cost of Rs. 500,000/-. The cost of capital is 16%. Evaluate the above policies and suggest the one that should be adopted. Assume 360 days in a year. (20 marks) Average age of receivables can play an effective yardstick in understanding the financial efficiency of a business. Comment.(10 marks)

Answer rating: 100% (QA)

To evaluate the proposed credit policies and suggest the one that should be adopted we need to calculate the net profit under each policy and compare ... View the full answer