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. Since 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 to $14,500,000, but it would also shorten the DSO on the sales to 30 days. Expected bad debt losses on the sales would fall to 3 percent. The variable cost percentage is 60 percent, and the cost of capital is 15 percent. The tax rate is 40%. Assume 360 days a year.

What are the pre-tax profits before and after this proposal?

What are the after-tax profits before and after this proposal?