Berkeley Prints Expects to Have Sales This Year of $15

question 17

Multiple Choice

Berkeley Prints expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the days dales outstanding (DSO) is 60 days; and the bad debt loss percentage is 5 percent. Also, Berkeley's cost of capital is 15 percent, and its variable costs total 60 percent of sales. Since Berkeley wants to improve its profitability, a proposal has been made to offer a 2 percent discount for payment within 10 days; that is, change the credit terms to 2/10, net 30. The consultants predict that sales would increase by $500,000, and that 50 percent of all customers would take the discount. The new DSO would be 30 days, and the bad debt loss percentage on all sales would fall to 4 percent.
-What would be the cost to Berkeley of the discounts taken?

• A) $116,750
• B) -$108,750
• C) $155,000
• D) $225,000
• E) $260,500

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Definitions:

Ego Psychologists

Ego psychologists study the role of the ego in development and the ways it adapts to reality, managing the conflicts between the id, ego, and superego as outlined in Freudian psychological theory.

Conscious Thought

The process by which individuals are aware of and can think about their thoughts, feelings, and beliefs.

Freud

Sigmund Freud, an Austrian neurologist and the founder of psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Social Interest

A concept in psychology that refers to an individual's inclination towards empathy, cooperation, and a sense of belonging within a community.