The present sales of ABC Itd are Rs.50 lacs. The company classifies its customers under three credit categories A, B and C. The company extends unlimited credit to category A, limited credit to category B and no credit to category C. As a result of this credit policy the company is foregoing sales to the extent of 5 lacs to customers in category B and Rs. 10 lacs to customers in category C The company is considering the adoption of a more liberal credit policy according to which category B customers will be provided with unlimited credit and customers in category C will be provided with limited credit. Such relaxation would increase the sales by Rs. 10 lacs on which bad debt losses will be 8 %. The contribution margin ratio (P/V) is 1596. Average collection period is 60 days. Cost of capital = 219. What will be the effect of relaxation of credit policy on the gross profit of the company? ould