BC PrintsBC Prints Expects to Have Sales This Year of $15

question 28

Multiple Choice

BC PrintsBC Prints expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the DSO is 60 days, and the bad debt loss percentage is 5%. Also, BC Prints' cost of capital is 15%, and its variable costs total 60% of sales. Since BC Prints wants to improve its profitability, a proposal has been made to offer a 2% 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% 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%.
-Refer to Scenario: BC Prints.What would be the incremental bad debt losses if the change were made?

• A)$250,000
• B)$130,000
• C)-$130,000 (bad debt losses would decline)
• D)-$250,000 (bad debt losses would decline)

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Definitions:

Economic Growth

The increase in the production and consumption of goods and services, leading to an improvement in the standard of living over time.

Production Possibility Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources), embodying the principle of opportunity costs.

Opportunity Cost

Bypassing potential gains from a range of alternatives by finalizing one choice.

Production Possibility Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources), representing the trade-offs of producing one good over another.