Campbell Computing Inc

question 29

Multiple Choice

Campbell Computing Inc.currently has sales of $1,000,000, and its days sales outstanding is 30 days.The financial manager estimates that offering longer credit terms would (1) increase the days sales outstanding to 50 days and (2) increase sales to $1,200,000.However, bad debt losses, which were 2 percent on the old sales, would amount to 5 percent on the incremental sales only (bad debts on the old sales would stay at 2 percent) .Variable costs are 80 percent of sales, and Campbell has a 15 percent receivables financing cost.What would the annual incremental pre-tax profit be if Bass extended its credit period?

• A) −$20,000
• B) −$10,000
• C) $0
• D) $10,000
• E) $20,000

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Definitions:

Audio File

A digital file format used to store sound data, including music, effects, and voice recordings, that can be played back by software.

Photo Effects

Digital alterations or enhancements applied to images or photos to achieve a specific visual appearance.

Hues

The qualities of color that distinguish them from one another, identified as a particular position in the color spectrum.

Regroup

The act of organizing or reassembling groups in a different configuration or for a renewed effort, often used in educational, logistical, or tactical contexts.