Question 36 Not yet answered Marked out of 10.00 P Flag question The present sales of Arjun Enterprises are Rs 50 million. The firm classifies its customers into 3 credit categories: A B and C. The firms extend unlimited credit to customers in category A, limited credit to customers in category B, and no credit to customers in category C. As a result of this credit policy, the firm is foregoing sale to the extent of Rs 5 million to customers in category B and Rs 10 million to customers in category C. The firm is considering the adoption of a more liberal credit policy under which customers in category B would be extended unlimited credit and customers in category C would be provided limited credit. Such relaxation would increase the sales by Rs 15 million on which bad debt losses would be 8 percent. The Contribution margin ratio for the firm is 15 percent, the average collection period is 60 days, and the cost of capital is 15 percent. The tax rate for the firm is 40 percent. What is the effect of new credit policy on residual income? (10) Maximum file size: 5MB, maximum number of files: 1