The United Shoe Company (USC) Does Not Extend Credit to Any

question 45

Multiple Choice

The United Shoe Company (USC) does not extend credit to any retail shoe store with a "Fair" or "Limited" Dun and Bradstreet credit rating.As a result of this policy the company loses $36,500,000 in sales each year.Based on prior experience with these types of customers, USC estimates that the average collection period would be 120 days and the bad-debt loss ratio would be 10%.The firm's variable cost ratio is 0.75.USC's required pretax return on receivables investments is 18%.Determine the net change in pretax profits of extending credit to these retail shoe stores.(Assume 365 days per year in any calculations.)

• A)$9,125,000
• B)$3,315,000
• C)-$1,095,000
• D)$2,160,000

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Definitions:

Genetics

The study of heredity and the variation of inherited characteristics.

Monozygotic Twins

Twins that originate from a single fertilized egg, sharing 100% of their DNA and typically having very similar physical characteristics.

Egg Cells

The female reproductive cells, also known as ova, which, when fertilized by a sperm cell, can develop into a new organism.

Genes

Units of heredity made up of DNA that act as instructions to make molecules called proteins.