Problem 20-18 Credit Analysis (LO4) Galenic Inc. is a wholesaler for a range of pharmaceutical products. Before deducting any losses from bad debts, Galenic operates on a profit margin of 6%. For a long time the firm has employed a numerical credit-scoring system based on a small number of key ratios. This has resulted in a bad debt ratio of 3.00%. Galenic has recently commissioned a detailed statistical study of the payment record of its customers over the past 6 years and, after considerable experimentation, has identified five variables that could form the basis of a new credit-scoring system. On the evidence of the past 8 years, Galenic calculates that for every 13,000 accounts it would have experienced the following default rates: Number of Accounts Credit Score under Proposed System Defaulting Paying Total 11,160 1,840 13,000 11,100 1,800 12,900 Better than 80 Worse than 80 Total 60 40 100 By refusing credit to firms with a poor credit score (worse than 80), Galenic calculates that it would reduce its bad debt ratio to 60 / 11,160, or just under 0.46%. while this may not seem like a big deal, Galenic's credit manager reasons that this is equivalent to a decrease of 1/5 in the bad debt ratio and would result in a significant improvement in the profit margin. a. What is Galenic's current profit margin, allowing for bad debts? (Round your answer to 2 decimal places.) Net profit margin b. Assuming that the firm's estimates of default rates are right, what would the profit per $100 of original sales be under the new credit-scoring system? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Profit