1. The current sales of Raja Ltd. are Rs.250 lakhs.

It sells on terms of net 30days and the average collection period (ACP) is 40 days. Bad debt losses are 3% of sales. The cost of unds blocked in receivables is reckoned at 18%. The variable costs are 80% of sales. Since the company has excess capacit, it can expand its sales substantially without additional fixed costs. The management is evaluating three alternative credit policies1. Policy A : This calls for relaxing the credit standards. It is expected to increase sales by Rs.40 lakhs. On the new sales, ACP will be 50 days and the bad debt loss is 15%. 2. Policy B : This involves changing the terms of credit from met 30to net 45. This is expected to raise sales byRs. 15 lakhs, lengthen the ACP to 60 days and result in a bad debtloss if 4% on the new sales. 3. Policy C : This calls for decreasing the rigours of colelction effort. This is expected to push sales up by Rs.10 lakhs, increase the ACP to 50 days and raise the bad debt loss to 4%. Determine the most optimum policy for the company. 15 M 2. Rama Ltd. has an annual turnover of Rs.84 crores that is spread evenly over each of the 50 weeks of the working year. However, the pattern within each of the 50 weeks is that the daily rate of receipts on Mondays and Tuesdays is twice that experienced on the other three days of the week. The cost of banking per day is estimated at Rs.2,500. It is suggested that banking should be done daily or twice a week Tuesdays and Fridays. Rama Ltd. always operates on bank overdraft at 15% per annum. The Bank charges interest on daily balance basis. Ignoring taxation, advise the company, the best course of banking. Use 1 year = 360 days. 10 M 3. What do you mean by Factoring? 5M