Section C, Financial Management

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Honey Well company is contemplating to liberalize its collection effort. It''s present sales are 1000000 and it''s average collection period is 30 days, it''s expected variable cost to sales ratio is 85% and it''s bad debt ratio is 5%. The company''s cost of capital is 10% and tax is 40%. The proposed liberalization in collection effort increases sales to 1200000, increases average collection period by 15 days and increases the bad debt ratio to 7%. Determine the change in profit.

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