As treasurer of the Universal Bed Corporation, Aristotle Procrustes is worried about his bad debt ratio, which is currently running at 5.9%. He believes that imposing a more stringent credit policy might reduce sales by 5% and reduce the bad debt ratio to 3.9%. Assume current sales are $100.

a. If the cost of goods sold is 81% of the selling price, what is the expected profit on the current credit policy?

b. If the cost of goods sold is 81% of the selling price, what is the expected profit on the more stringent credit policy?