Ruoth Ltd is considering relaxing its credit standards. The firm's current credit terms are net 30 but the average debtor's collection period is 45 days. Current annual credit sales amounts to Sh.6,000,000. The firm wants to extend credit period net 60. Sales are expected to increase by 20%. Bad debts will increase from 2% to 2.5% of annual credit sales. Credit analysis and debt collection costs will increase by Sh.4,000 p.a. The return on investment in debtors is 12% for Sh.100 of sales, Sh.75 is variable costs. Assume 360 days p.a. Should the firm change the credit policy? (9 marks)

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