Review the case study provided below and then answer the questions that and provide

explanations where needed. Provide all calculations.

Bolt Ltd is a prosperous sports regalia group in Gauteng. Currently, $96\%$ of Bolt Ltd$.$s annual

sales are on credit and are expected to remain at this level in the future. Due to a large percentage

of uncollectable debts, Bolt Ltd has decided to change its credit policy. You were approached to

express an opinion on the effects of the proposed change in the credit policy. After further

investigation, you determined the following:

Bolt Ltd$.$s current credit policy is $3/10$ net $60,$ and the proposed credit policy is $10/10$ net $45.$

Currently, $10\%$ of all clients who purchase on credit make use of the cash discount. In terms of

the new credit policy, $20\%$ of all clients who purchase on credit will make use of the cash discount.

Due to the stricter proposed credit policy, the total annual credit sales will drop from R$3$ million to

R$2,5$ million. Currently, the average debtor$$s collection period is $59$ days. The average debtor$$s

collection period should improve to $40$ days in terms of the proposed credit policy. Bad debts,

which currently amount to $7\%$ of credit sales, will improve to $4\%$ of credit sales with the

implementation of the proposed credit policy. The opportunity cost associated with an investment

in working capital is $19\%.$ The gross profit percentage will remain unchanged at $15\%.$

REQUIRED:

Perform an analysis and calculations for Bolt Ltd in which you set out the impact of the proposed

change in the credit policy. Indicate what the outcome of the change may be from a financial

viewpoint. $(15)$

Suggested Template.

Calculation Amount Increase$/$decrease

Change in gross profit

Change in marginal investment in

accounts receivable: Current less

proposed policy calculation

Change in marginal investment in

accounts receivable opportunity cost

calculation.

Change in bad debt losses

Change in cost of discount

Overall