East Lansing Appliances

question 48

Multiple Choice

East Lansing Appliances
East Lansing Appliances (ELA) expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the days sales outstanding (DSO) is 60 days; and the bad debt loss percentage is 5 percent. Because ELA wants to improve its profitability, the treasurer has proposed that the credit period be shortened to 15 days. This change would reduce expected sales by $500,000, but it would also shorten the DSO on the remaining sales to 30 days. Expected bad debt losses on the remaining sales would fall to 3 percent. The variable cost percentage is 60 percent, and the cost of capital is 15 percent.
-Refer to East Lansing Appliances.What are the incremental pre-tax profits from this proposal?

• A) $181,250
• B) $271,750
• C) $256,250
• D) $206,500
• E) $231,250

---

Definitions:

Social Networking

The use of dedicated websites and applications to interact with other users, or to find people with similar interests to oneself.

Type A Pattern

A behavioral pattern characterized by high competitiveness, self-imposed stress, impatience, and aggression.

Time Urgency

A feeling or perception that there is not enough time to complete tasks, often associated with stress and anxiety.

Easily Aroused Hostility

A tendency to become easily angered or hostile, often with little provocation.