The financial statements of Gurunath Ltd is furnished below – Balance Sheet as at 31st March Particulars as at 31st March Note ₹ I EQUITY AND…

The financial statements of Gurunath Ltd is furnished below – Balance Sheet as at 31st March Particulars as at 31st March Note ₹ I EQUITY AND LIABILITIES: (1) Shareholders' Funds: 10,00,000 (2) Non-Current Liabilities: 10% Debt 6,00,000 (3) Current Liabilities 1,56,000 Total 17,56,000 II ASSETS (1) Non-Current Assets 16,56,000 (2) Current Assets – Trade Receivables 1,00,000 Total 17,56,000 Additional Information: 1. The existing credit terms are 1/10, net 45 days and average collection period is 30 days. The current bad debts loss is 1.5%. In order to accelerate the collection process further as also to increase sales, the company is contemplating liberalization of its existing credit terms to 2/10, net 45 days. 2. It is expected that sales are likely to increase by 1/3 of existing sales, bad debts increase to 2% of sales and average collection period to decline to 20 days. 3. Credit period allowed by the supplier is 60 days. Generally, operating expenses are paid 2 months in arrears. Total Variable expenses of the company constitute Purchases of stock in trade and operating expenses only. 4. Opportunity cost of investment in receivables is 15%. 50% and 80% of customers in terms of sales revenue are expected to avail cash discount under existing and liberalization scheme respectively. The tax rate is 30%. 5. The Company considers only the relevant or variable costs for calculating the opportunity costs on the funds blocked in receivables. Assume 360 days in a year and 30 days in a month. Should the company change its credit terms?