QUESTION 2 Lagos Fresh Foods Limited (LFFL) is a privately owned food processing company based in Ikeja, Lagos. The company processes and distributes fresh tomato paste, pepper sauce, and vegetable oils to supermarkets and open markets across South-West Nigeria. The Managing Director, Mrs. Chidinma Okafor, is considering a proposal to relax the company's credit policy in order to increase sales. Currently, the company sells on 30-day credit terms. The proposed new policy would extend credit to 60 days. The following data is available: Current Policy (30-day credit): - Annual Credit Sales: ₦360,000,000 - Variable Cost Ratio: 65% of sales - Bad Debt as % of Sales: 1.5% - Administration cost of credit control: ₦3,600,000 per annum - Receivables collection period: 30 days (assumed) Proposed Policy (60-day credit): - Projected Annual Credit Sales: ₦432,000,000 (20% increase) - Variable Cost Ratio: 65% of sales (unchanged) - Bad Debt as % of Sales: 3.0% - Administration cost of credit control: ₦5,400,000 per annum - Receivables collection period: 60 days (assumed) Additional Information: - The company's cost of financing receivables (opportunity cost of capital) is 18% per annum. - Assume a 360-day year for simplicity. - Ignore taxation. Required: (a) Prepare a financial evaluation to determine whether LFFL should adopt the proposed credit policy. Show clearly the incremental effect on profitability and advise management accordingly. (14 marks) (b) Identify and explain FOUR non-financial factors that Mrs. Okafor should consider before making a final decision on the credit policy change. (6 marks) Total: 20 marks