Varun Sales has an annual turnover of Rs.2400000.Goods are sold to customers on 60 days credit. The company is considering the following alternatives to better manage its accounts receivables

Proposal 1 Offer a cash discount of 0.75% if payment is made within 20 days. In this case about 50% of debtors in terms of value are expected to avail of this facility

Proposal 2 Offer a cash discount of 1% if payment is made within 30 days. In this case about 75% of debtors in terms of value are expected to avail of the facility

Proposal 3 Offer a cash discount of 1.25% if payment is made within 40 days. In case of this alternative all the debtors are expected to avail this facility.

Varun Sales have an Overdraft facility with their bankers who charge interest @ 15% p.a. on the amount overdrawn.

As the credit manager of Varun sales decide the Policy to be adopted. (5 Marks)