Read the following information carefully and answer the questions that follow: Ravi Thami, financial vice president of Shikhar Chemical Corporation, recently received a report from the company's…

Read the following information carefully and answer the questions that follow:

Ravi Thami, financial vice president of Shikhar Chemical Corporation, recently received a report from the company's marketing department recommending that Shikhar's credit policy be eased. Specifically, the report recommended that the credit terms be changed from 2/10, net 30 to 3/20, net 45. According to the report, such a change would cause sales to increase from Rs 18 million to Rs 24 million.

Currently, 60 percent of Shikhar's-paying customers pay on Day 10 and take the discount, 40 percent pay on Day 30. Only 2 percent of sales currently end up as bad debt losses. If the new credit policy is adopted, Thami thinks that 70 percent of paying customers would take the discount, 30 percent would pay on Day 45. However, bad debt losses would rise from 2 percent to 3 percent.

Variable operating costs currently are 75 percent of sales, the cost of funds used to carry receivables is 10 percent, and Shikhar's marginal tax rate is 40 percent. None of these factors would change as a result of a credit policy change.

To help decide whether to adopt the new policy, Thami has asked you to answer the following questions: a. Calculate Shikhar's Days sales outstanding before and after change in credit terms. b. What is the rupee amount of bad debt losses, discounts, cost of carrying receivables under the current and the proposed credit policies? c. What is the expected incremental profit associated with the proposed change in credit policy? Based on the analysis thus far, should the change be made? d. How does relaxation in credit standard affect expected sales, bad debt loss, and opportunity cost? Answer in words only.