Berno sells various types of blades to retail hardware stores. The company is considering offering credit on terms of 3/5, net 30 to a group of costumers with low Credit Appraisal. Berno estimates $6,285,000 additional sales could be generated with this credit extension. The estimated average collection period for these customers is 65 days, and the expected bad-debt loss ratio is 5 percent. The company also estimates that an additional inventory investment of $700,000 is required for the anticipated sales increase. Approximately 20 percent of these customers are expected to take the cash discount. Bernos variable cost ratio is 0.75, and its required pretax rate of return on investments in current assets is 18 percent.

Determine the profit contribution of the additional sales due to this credit policy change.

Group of answer choices

6,285,000

1,571,250

3,438,750

Determine the cost of additional investment in receivables.

Group of answer choices

6,285,000

201,464

1,119,247

5,125,753

Determine the additional bad-debt loss.

Group of answer choices

114,250

214,250

314,250

414,250