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1 . UBS Ltd is considering changing its credit policy. Current sales under the present policy are Tshs 2 , 4 0 0 million per

1. UBS Ltd is considering changing its credit policy. Current sales under the present policy are Tshs 2,400 million per annum. The company has made the following estimates:
Present Policy Policy A Policy B
Additional sales demand 25%35%
Average collection period 1 Month 2 Months 3 Months
Bad debt risk (% of sales)1%3%6%
You are given the following additional information:
The companys expected return on investment is 20%
Variable costs are 70% of gross sales value
There will be no increase in fixed costs from extra turnover
There will be no increase in average stocks or creditors
Required: Advise the company which is the preferable policy.

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