The Scottish Cake Company has annual sales of £1,200,000.

Annual non-current costs are £150,000 and last year’s profit was

£50,000. At the year end the receivables figure was £100,000.

The company has been offered a contract for supplying cakes to the Swaysco Supermarket Group in England. Sales would be £300,000 in a year, and Swaysco would require three months’
credit. The Scottish Cake Company’s cost of capital is estimated at 15 per cent per annum. Is the proposed expansion worth while if all customers are given three months’ credit? Is the proposed expansion worth while if only Swaysco is given three months’

credit?