Baber (Pty) Limited, BR has annual credit sales of N$ 40 million. The present credit terms are 2/10, net 50 and at the present half of the customers use the early settlement discount of 2%. The average collection period is 30 days and bad debts losses currently stand at 3% of sales for which discounts are not taken. During a board meeting it was resolved to change the company's credit policy. The proposal is to amend the credit terms to 3/10, net 30. It is envisaged under the new policy that 60% of the customers are expected to use the early settlement discount with the average collection period expected to decrease to 18 days. Bad debts are expected to decline to 2% of sales for which discounts are not taken. Sales is expected to decrease by N$ 2 million to N$ 38 million. The gross profit margin will remain unchanged at 25%. The credit term offered by Quantum Limited, a major supplier of BR is 5/10, net 40. BR is considering negotiating with its suppliers for an additional 20 days. BR is currently paying on 40 days and the opportunity cost of investments in working capital is 12% per annum. Assume that there are 365 days in a year. Required: a) Calculate the impact of the change in credit policy would have on net profit. What advice would you give BR? Show all your workings (18 marks) b) Calculate the effective cost of trade creditor finance. (2 marks)