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

question 63

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 are the incremental pre-tax profits from this proposal?

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