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js56154 js56154
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A year ago

BC Prints

BC 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?


▸

$250,000



▸

$130,000



▸

-$130,000 (bad debt losses would decline)



▸

-$250,000 (bad debt losses would decline)

Textbook 
Financial Management: Theory and Practice

Financial Management: Theory and Practice


Edition: 4th
Authors:
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bhturnerbhturner
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A year ago
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Thanks for your help!!
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