Question 1 Moepathutse Ltd is considering changing its credit terms from 3/15 net 30, to 5/10 net 60. All sales are on credit and at present 70% of the customers take advantage of the 3% early settlement discount. However, under the new credit policy, only 60% of the customers are expected to take advantage of the early settlement discount and the average collection period is expected to increase from the current 20 days to 30 days. Sales are also expected to increase from R240m to R270m if the new terms are used. It is estimated that the gross profit margin will remain unchanged at 20%. Bad debt losses amount to 2% of sales for which early settlement discounts are not taken. The opportunity cost associated with an investment in working capital is 10% per annum. (a) Calculate the change in gross profit (5 Marks) (b) Calculate the change in the carrying cost of accounts receivable (7 Marks) (c) What is the negative effect on net income as a result of the change in cost of carrying receivables (3 Marks)? (d) Calculate the bad debt losses (11 Marks) (e) Evaluate and conclude on the impact of a new credit policy will be on profitability. (6 Marks)