Berkeley Prints Expects to Have Sales This Year of $15

question 25

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 are the incremental pre-tax profits from this proposal?

• A) $283,750
• B) $250,500
• C) $303,250
• D) $493,750
• E) $288,250

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Definitions:

Ancestor Class Constructor

A constructor call for a superclass in an inheritance hierarchy, used to initialize the state of an ancestor class before the derived class.

Superclass Constructor

The constructor of a superclass that is called when an instance of a derived class is created, often used to initialize state inherited from the superclass.

Subclass Constructor

A subclass constructor is a special method in object-oriented programming used to create instances of a subclass, possibly invoking a superclass's constructor as part of its process.

Clone Method

A method that creates and returns a copy of an object, often overriding the protected clone method defined in the Object class.