Pedro Corp. currently has sales of P2,000,000, and its days sales outstanding is 2 week. The financial manager estimates that offering longer credit terms would increase the days sales outstanding to 3 weeks and increase the sales by 50%. However, bad debts losses, which were 1% on the old sales, would amount to 2% only on incremental sales. Variable cost is 70% of sales. Pedro Corp. has a 10% receivable financing cost. Use 360 days per year.

1. What is the incremental increase in the balance of AR?
2. What is the Change in carrying cost? Indicate if an increase or decrease
3. What would the annual incremental pre-tax profit be if Pedro Corp. extended its credit period?