The Managing Director, Namikumar, of Rajula Ltd., is inclined to relaxing the credit policy, to increase the sales turnover. Management accountant of Rajula Ltd. has submitted the profit plan based on Sales of ₹10 lakh,

The Managing Director, Namikumar, of Rajula Ltd., is inclined to relaxing the credit policy, to increase the sales turnover. Management accountant of Rajula Ltd. has submitted the profit plan based on Sales of ₹10 lakh, and an accounts turnover ratio of 10 times. He has also projected a Profit-volume ratio @ 30%, bad debts ratio @ 1%, and fixed cost at ₹50,000. Namikumar, has mentioned that, by relaxation of the credit policy, sales would increase by ₹2 lakh. The bad debts ratio will be 2% of total sales, and accounts turnover ratio will be 6 times. Management accountant is of the opinion that, company's cost of capital is 20% based on working capital limits and opportunity cost of capital. It is the practice of the banker to allow the working capital limits based on total sales value and to consider the debtors at sales value. You are required to advise Namikumar, whether to move for relaxation of the credit policy or not.