Berkeley Prints Berkeley Prints Expects to Have Sales This Year of $15

question 90

Multiple Choice

Berkeley Prints
Berkeley Prints 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. Also, Berkeley's cost of capital is 15 percent, and its variable costs total 60 percent of sales. Because Berkeley wants to improve its profitability, a proposal has been made to offer a 2 percent 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 percent 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 percent.
-Refer to Berkeley Prints.What would be the incremental cost of carrying receivables if the change were made?

• A) −$108,750 (carrying costs would decline)
• B) $116,250
• C) $157,900
• D) −$225,000 (carrying costs would decline)
• E) $260,500

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Definitions:

Nuisance

That which endangers life or health, gives offense to the senses, violates the laws of decency, or obstructs the reasonable and comfortable use of property.

Invasion

The act of entering a place or area by force, often used in a military context.

Property

Something that is capable of being owned. A right or interest associated with something that gives the owner the ability to exercise dominion over it.

Malicious Prosecution

An intentional tort designed to protect against the wrongful initiation of criminal proceedings.