Campbell Computing Inc

question 25

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:

Significance

The degree to which a result, difference, or relationship in data is not likely to occur by random chance.

Statistics

A set of tools and techniques used to describe, organize, and interpret information or data.

Inferential Statistics

Tools that are used to infer characteristics of a population based on data from a sample of that population.

Representative

Serving as a typical or characteristic example of a larger group or set, aimed at accurately reflecting the attributes of the whole.