MC has current sales of £1.5m per year. Cost of sales is 75 per cent of sales and bad debts are 1 per cent of sales. Cost of sales comprises 80 per cent variable costs and 20 per cent fixed costs. The company finances working capital from an overdraft at a rate of 7 per cent per year. MC currently allows customers 30 days’ credit, but is considering increasing this to 60 days’ credit in order to increase sales.

It has been estimated that this change in policy will increase sales by 15 per cent, while bad debts will increase from 1 per cent to 4 per cent. It is not expected that the policy change will result in an increase in fixed costs and payables and inventory will be unchanged. Should MC introduce the proposed policy?