Rocket Potassium Ltd

Multiple Choice

Rocket Potassium Ltd. has $15 million in credit sales per year and on average they are outstanding for 75 days. Each rocket dosage sells for $1,000 and results in a 10% contribution margin. Receivables are financed at a 12% interest rate. Bad debts total $350,000 annually. The accounting department has a new plan by which it estimates it can eliminate half of the bad debts and reduce the collection period by 30 days if it is permitted to hire two collections specialists at a cost of $85,000 per year each. The new plan would result in 2% lost sales. How much better off would the new plan leave Rocket Potassium?

A) $122,384
B) $127,384
C) $157,384
D) $297,384
E) $302,384