B3)\"New issue of capital is costlier than the retained eam differ? Section C A

Question

B3)"New issue of capital is costlier than the retained eam differ? Section C A company is Phoposed terms of credit a Policy Terms Sales sales of Rs 16,00,000 and it extends a credit of 90 days to its customers herewith r in order inacia difficulties, it is considering to change the credit policy. The and expected sales are given 75 Days 15,00,000 6C Days 1450,000 45 Days 14.25,000 IV | 30 Days 1350,0001 15 Days 13,00,000 capital is 12% The firm has a variable cost of 80% and fixed cost of Rs One Lakh. The cost of Evaluate the different proposed policies and suggest which policy should be adopted ( Year may taken as 360days )

Explanation / Answer

Existing sales =1600000*3 or 90days/12 or 360 days= 400000/- for 90 days

Cost of Capital =400000*12/100 = 48000 interest annually in existing plan Net profit =1600000*80/100=1280000+100000 fixed cost =1380000

NP =16000000-1380000-48000=172000

Sales-Totalcost =Profit

1200000+100000=1300000

1140000+100000=1240000

1040000+100000=1140000

200000

121000

Policy A is best because of highest profit is 200000/- in plan A

Policy Sales Variable cost + Fixed Cost

Sales-Totalcost =Profit

1 1500000

1200000+100000=1300000

200000 2 1450000 1160000+100000=1260000 190000 3 1425000

1140000+100000=1240000

185000 4 1350000 1080000+100000=1180000 170000 5 1300000

1040000+100000=1140000

160000

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