RCMP Has Annual Credit Sales of $37 Million

Multiple Choice

RCMP has annual credit sales of $37 million.The credit terms are "net 30" and the current average collection period is 45 days.RCMP is considering changing its terms to 1/10, net 30 in an effort to reduce the average collection period.RCMP believes that 35% of its customers will take the discount, reducing the average collection period to 33 days.Should RCMP offer the discount? Assume the firm's required rate of return on its receivables investment is 14%.

A) No, pretax profits decrease $88,700
B) Yes, pretax profits increase $53,600
C) Yes, pretax profits increase $40,801
D) No, pretax profits decrease $40,801