For the past few years Fabio Company has been making credit sales on 'net-30' terms. Annual credit sales currently stand at Shs. 72 million and it takes an average of 60 days to collect receivables. To speed up collection, the company is considering offering terms of 2/10, net 30.It anticipates that credit customers taking advantage of the discount will represent 40% of the sales volume and average collection period will be shortened by 25 days.However the change will not affect the volume of credit sales. Assuming a year with 360 days and 12% as cost of capital for Fabio:

a)Should the new credit policy be adopted?

b)For each of the following variable, determine the level that is needed for the new credit policy to break-even:

1.The average collection period

2.Proportion of sales for customers taking up the discount

3.Credit sales (assume a net profit margin of 5%)s