Travel and Tow Trailers Inc

question 25

Multiple Choice

Travel and Tow Trailers Inc. makes small trailers for light-duty towing behind SUVs and small pickup trucks. Its trailers typically sell for $2,500. Many of its customers have asked for credit terms to aid in purchasing the trailers. The firm's finance department has estimated the following profile for its light-duty trailers and customer base: Annual sales: 10,000 trailers
Annual production costs per trailer: $1,500
Lost sales if credit is not provided for customers: 2,000 trailers
Default rate if all customers purchase on credit: 3.00%
What is the change in the profit margin if the firm moves from a cash-only policy to a credit policy?

• A) $1,250,000
• B) $8,000,000
• C) $9,250,000
• D) $15,000,000

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