The annual sales revenue of a company is 300 million dollars. The cost of capital is %12.

Current Credit Policy: Current credit period is 30 days. %10 of the customers pay cash and take %4 cash discount. 80% of the customers pay on the 30th day and %10 of the customers pay on the 90th day. The firms cost ratio (excluding depreciation) is 40%. Credit analysis and collection expenses are 4 million dollars. Bad debt losses are 6 million dollars. The company is considering a new credit policy given below.

Proposed Credit Policy: The credit period will be 45 days. Annual sales are expected to be 350 million dollars. The new cash discount is %5. It is expected that %20 of the customers pay cash and take the discount. It is expected that %50 of the customers pay on the 45th day, %30 of the customers pay on the 60th day. The firms cost ratio (excluding depreciation) is again 40%. Credit analysis and collection expenses are expected to be 2 million dollars. Bad debt losses will be 8 million dollars.

a) Analyze two credit policies.

b) Which credit policy would you choose? Why? Explain.

(Urgent and basic answer is welcome I have limited time.)