QUESTION 1 [26] Bell quality Ltd (Pty) is considering changing its credit terms from 3/15 net 30 to 6/10 net 60. All sales are credit and at present 60% of the customers are taking advantage of the 3% early cash discount. However, under the new credit policy, only 50% of the customers are expected to take advantage of the early cash discount and the average collection period is expected to increase from the current 20 days to 30 days. Sales are expected to increase from 25 million to 30 million if the new terms are used. It is estimated that the gross profit margin will remain unchanged at 18%. Bad debts amount to 2% and the opportunity cost is 10% per year. (3) (3) Calculate the following if management accepts the new credit policy: 1.1 The change in gross profit. 1.2 The change in bad debts The change cost of the cash discount 1.4 The cost of investment in the account receivable. The change in cost of investment in the account receivable. 1.3 (3) (5) 1.5 1.6 The increase or decrease in net profit. (6) 1.7 Advise management whether they should accept the new credit policy. Use your calculations to justify your answer. (2)