Read the case given below and answer the questions given at the end.
CASE STUDY-1:
Better deals ltd. having an annual turnover of Rs. 80 lacs, 25% of which are cash sales. Normal credit allowed to debtors is 30 days. To increase the market share from present level, the marketing manager proposed to liberalize the credit policy which is as under:-
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The product yields an average contribution of 25% on sales. The fixed cost amount to Rs. 5, 00,000 per annum. The company
expects a pre-tax return of 20% on capital employed. The bad debts of the company have been from 1% to 1.5% in case of
proposal I and 2% in case of Proposal II. As a finance manager, you are requested to evaluate the proposal and comment