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1. Khoobsurat industries Ltd is a major player in the soap and detergent business. It has a market share of 25% which is almost twice as much as that of the next competitor. The current sales of the firm amount to Rs. 6000000 p.a. At present there are no bad debts. The company is selling its product at Rs. 10 each. Average cost per unit at the current level is Rs. 8 and variable cost per unit is Rs. 6. It extends 30 days' time to customers to pay the amount. Recently few foreign and local players enters the market. The CEO of the company, Sushant Sachdeva, has asked Amit Gupta, the Chief Manager, to submit proposals to meet the challenge from the competitors. Mr. Amit has, after the detailed survey and discussions, proposed 3 options for the consideration of the CEO.: Option 1: Increase the credit period by 15 days. In this case, sales are expected to increase by Rs. 250000. This in turn leads to 0.5% default. Option 2: Increase the credit period by 30 days. In this case, sales are expected to increase by Rs. 600000. This in turn leads to 1% default. Option 3: Increase the credit period by 40 days. In this case, sales are expected to increase by Rs. 700000. This in turn leads to 2% default. If Khoobsurat required a rate of return of 20% on its investment, which credit policy do you recommend and why?. Assume 360 days a year. (Use 2 decimal points in the calculation)

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