• Simran Inc. is a manufacturer of automatic doors and has annual sales of $10,000,000. Since it was established in 2005, Simran Inc. has NEVER taken any cash sales; all sales have been on credit. To attract its customers to pay their invoices early, Simran Inc. offers credit terms of 1/50 net 70. Customers pay either at the discount date or at the net date. Simran Inc. has an average collection period of 60 days. Simran Inc. has grown slowly in the past five years and is considering adopting a new credit policy by relaxing its credit terms to 2/60 net 90, in the hopes of increasing sales and securing new customers. An analysis of how the change in credit terms would affect Simran Inc. is as follows: New total sales level $12,000,000 Contribution margin (no change) 30% New average collection period 75 days Additional investment in inventory $50,000 The resulting increase in sales is expected to increase bad-debt losses from 1.5% to 2.8% of sales. Simran Inc. has a required rate of return of 15%.
•  Required: 
• a) Determine whether Simran should adopt the new credit policy. (10 marks) 
• b) Discuss three factors that would change your answer to part (a). (3 marks)