Question 2 (a) Hunter plc requires advice on its debt collection policy. its directors are considering two options for reducing bad debts and shortening the period of credit extended to its debtors. The current situation is as follows. Option 1 involves offering a 2% discount for prompt payment it is expected that this will not affect the level of sales but that half of the sales each year would be made at a 2% discount adding an extra 48,000 to the current annual expenditure on debt collection procedures. The positive effects of this option would be to reduce bad debts by 0.5% and reduce the average collection period by 30 days. Option 2 is to expand the credit control department to enable it to chase debts more effectively. This would increase annual costs by100,000, reduce bad debts by 1% and reduce average collection period by 60 days. Should the current policy be discarded in favour of option 1 or optior (b) Johnson Ltd requires advice on its debt collection policy. Its directors considering two options for reducing bad debts and shortening the period of credit extended to its debtors. Option 1 involves employing an additional credit controller and option 2 involves employing 2 extra staff and allocating additional office space. The costs and likely effect of each of these options is set out below and compared to the current position. Current sales are 4,800,000 a year, and the company requires a 20% return on its investments. Required: Should the current policy be discarded in favour of option 1 or option 2