THREE DUE DATE 15/06/2022. (a) Kalub Ltd achieves current annual sales of K1,800.000 The cost of sales is 80% of this amount but bad debts average 1% of total sales, and the annual profit is as follows: K Sales Less: cost of sales Gross profit Less: bad debts Net profit 1,800,000 (1.440,000) 360,000 (18,000) 342,000 The current debt collection period is one month, and the management consider that if credit terms were eased (option A below) then the effects would be as follows: Additional Sales Average collection Period Bad debts (% of sales) Present Policy 1 month 1% Option A 25% 2 months 3% The company requires a 20% return on its investments. If the cost of sales are 75% variable and 25% fixed and on the assumption that: there would be no increase in fixed costs from the additional turnover there would be no increase in average stocks or creditors Required: What is the preferable policy. Option A or the present one? (b) What is meant by the cash conversion cycle? (20 Marks) (5 Marks) [Total 25 Marks]