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Cosmos plc has yearly sales of Rs1m, 25% of which is on credit with the average collection period of 40 days. Bad debts average only 1% of all credit sales. A current review of credit control procedures has suggested that sales on credit must be encouraged in an effort to win more trade. It is believed that this would increase sales by 30% and that, of this enlarged volume, 40% would be on credit. The average collection period would be diminished to 35 days but bad debts would rise to 1.5% of all credit sales. The company's cost of capital is 14% per annum and variable costs average 85% of sales value. The annual cost of clerical labour involved in change would be Rs10, 000.

Required:

ssess the financial attractiveness of rising credit sales.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M98900

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