PQR Ltd offers a 30 days credit period to its customers. Its sales are 80 lacs and the ACP is 20 days. The contribution margin is 0.15 and cost of capital is 10%. The company is thinking of relaxing its credit policy further to 40 days. Such relaxation is expected to increase sales by 5 lacs but increase the ACP to 25 days. It is further estimated that with new terms 80% of customers will avail the discount. However, with change in credit policy the bad debts are also expected to be 5%. The tax rate applicable to the company is 40%. Discuss the effect of relaxing the credit policy on the residual income of the firm.