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Transient Ltd is currently operating at the 65% capacity utilization level with its sales pegged at Rs

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Transient Ltd is currently operating at the 65% capacity utilization level with its sales
pegged at Rs. 950 lakhs. As per its current credit policy the firm is offering a credit
period of 20 days. The average collection period for Transient Ltd is 30 days. In view of
increased competition that has started to erode its bottom-line recently, the firm's
management has been contemplating relaxing its credit terms. As per management's
projections such a liberalization of firm's credit policy is likely to boost its sales by
30%.However, since the proposed change is likely to increase the average credit period
for the firm by 30 days, one section of company management is opposed to such a
change proposed in the credit policy and is advocating a status quo. The variable costs
for the firm are 75% of the sales and the fixed cost is Rs.100 lakhs. Are you in favor of
such a change proposed in the firm's credit policy? Assume the opportunity cost of
capital for Transient Ltd is 12%.