2. The credit terms of a firm currently is "net 30". It is considering changing it to "net 60." This will have the effect of increasing the firm's sales. As the firm will not relax lts credit standards, the bad-debt losses are expected to remain at the same percentage, i.e., 3 per cent of sales. Incremental production, selling and collection costs are 80 per cent of sales and expected to remain constant over the range of anticipated sales increases. The relevant opportunity cost for receivables is 15 per cent. Current credit sales are *300 crore and current level of receivables is 30 crore. If the credit terms are changed, the current sale is expected to change to 360 crore and the firm's receivables level will also increase. The firm's financial manager estimates that the new credit terms will cause the firm's collection period to increase by 30 days.

(a) Determine the present collection period and the collection period after the proposed change in credit terms.

(b) What level of receivables is implied by the new collection period?

(c) Determine the increased investment in receivables if the new credit terms are adopted.

(d) Are the new credit terms desirable?