Nitya Appliances Ltd. Deals in household appliances, having an annual turnover of Rs.80 lakhs, of which 75% are credit sales effected through the dealer network while balance sales are through the showrooms on cash basis. Normal credit allowed is 30 days. The company proposes to expand its business substantially as there is good demand. However, the dealers have difficulty in holding more stocks due to financial problems, hence change in credit terms. The products yield a contribution of 25% on sales and fixed cost amount to Rs.5 lakhs per annum. The firm expects a pre-tax return of 20% on capital employed. The bad debt provision has been increased from current 1% to 1.5% for Plan I and to 2% for Plan II. Consider 360 days in a year. Evaluate the merits of the new proposals and recommend the best policy. _____

Proposal	Credit Period (days)	Anticipated credit sales Rs (Lakhs)
Plan I	60	70
Plan II	90	75