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KBC Ltd. currently provides 30 days of credit to its customers. Its present level of sales is Rs. 50 million. The firm's cost of capital
KBC Ltd. currently provides 30 days of credit to its customers. Its present level of sales is Rs. 50 million. The firm's cost of capital is 10 percent and the ratio of variable costs to sales is 0.85. KBC Ltd. is considering extending its credit period to 40 days. Such an extension is likely to push sales up by Rs. 5 million. The bad debt proportion on additional sales would be 8 percent. The tax rate for KBC Ltd. is 40 percent. What will be the effect of lengthening the credit period on the residual income of KBC Ltd.? Should KBC Ltd. lengthen its credit period
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