Taste Champagne $($Pty$)$ Ltd is very concerned about their debtor's collection period. Although their normal terms are $2/10$ net $30.$

You have been provided with the following information:

The company believes that they need to tighten their credit terms to $\frac{5}{30}$ net $45$ to increase the incentive for their customers to pay more

quickly. They believe that this will reduce their bad debts to $1\%$ of gross sales and that $50\%$ of gross sales of customers will take the discount.

Turnover is expected to rise to R$41000000$ due to the changes. They expect the debtors' days to change from the current level to $50$ days.

A finance house has also offered to factor the debtors' book of the company at a discount of $15\%$ based on the current credit terms. They would

pay all sales $15$ days after the sale is made excluding those that opted to make use of the discount. They will take over all credit risk.

Required:

a$)$ Calculate and comment on the debtors' days. The company offsets bad debts and dis$-$count given to credit sales for decision making purposes.

$(4$ Marks$)$

b$)$ Determine the impact of the change in credit policy on the company's profit. $(10$ Marks$)$