The Boyd Corporation has annual credit sales of $1.6 million. Current expenses for the collection department are $35,000, bad debt losses are 1.5%, and the days sales outstanding is 30 days. The firm is considering easing its collection efforts such that collection expenses will be reduced to $22,000 per year. The change is expected to increase bad debt losses to 2.5% and to increase the days sales outstanding to 45 days. In addition, sales are expected to increase to $1,625,000 per year. The opportunity cost of funds is 16%, the variable cost ratio is 75%, and the marginal tax rate is 40%.

1. Use the Income Statement Approach to find the incremental bad debt losses.

2. Use the Income Statement Approach to find the incremental cost of carrying receivables.

3. Use the Income Statement Approach to find the incremental pre-tax profits from this proposal.

4. Use the Incremental Analysis Approach to find the incremental bad debt losses.

5. Use the Incremental Analysis Approach to find the incremental cost of carrying receivables.

6. Use the Incremental Analysis Approach to find the incremental pre-tax profits from this proposal.