Reference no: EM132600017

Synaitec Ltd. sells artificial intelligence chips to car manufacturers for self-driving vehicles. The company has seen substantial bad debts as upstarts struggle in the market and is considering changing its credit terms substantially. Currently, the company employs a lenient credit policy. A change to a more stringent policy is expected to lower bad debts, however, the impact on sales and working capital requirements has not yet been determined. Currently, the company has sales of R3 million which is expected to fall to R2.5 million. The gross profit margin of 80% is expected to stay the same. Bad debts are currently equal to 10% of sales, it is expected that under the new policy, this would fall to 2% of sales. The days sales outstanding (or average collection period) is currently 60 days, this is expected to drop to 30 days under the new policy. The company ties an opportunity cost of 12% to its working capital layout. Determine the effect on the net income such a change in policy would bring about and choose the nearest answer.

Question 1: Calculate the change in the investment in accounts receivable and choose the most correct option.

A. -R221 917

B. -R26 630

C. R26 630

D. R221 917