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Woolies Boutique is considering changing their credit terms from 4/20 net 30 to 8/10 net 60. At present 80% of clients make use of
Woolies Boutique is considering changing their credit terms from 4/20 net 30 to 8/10 net 60. At present 80% of clients make use of the discount and under the new policy 65% of clients will make use of the discount. The average collection period will change from 22 days at present to 35 days. Sales will increase by R600 000 to R4 500 000 under the new policy. The gross profit percentage will remain unchanged at 25% and 10% of sales are for cash. Bad debts losses amount to 3% of debtors for which discounts are not taken and under the new policy this will change to 5%. The opportunity cost associated with an investment in working capital is 20% per year. The change in gross profit is? A. R150 000 (decrease). B. R1 125 000 (increase). C. R150 000 (increase). D. R1 125 000 (decrease).
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