OBA Ltd. has current sales of GH10m per year. Cost of sales is 75% of sales and bad debts are 4% of sales. Cost of sales comprises 80% variable costs and 20% fixed costs, while the companys required rate of return is 12%. OBA Ltd. currently allows customers 60 days credit. In recent times, OBA Ltd. has been facing liquidity problems and plan of changing its current credit policy. There are three proposals that OBA Ltd. is considering and hope will improve the companys liquidity situation.

Proposal 1 OBA can decrease credit period to 30 days. It has been estimated that this change in policy will decrease sales by 15 percent and bad debts will decrease from 4% to 1%.