The United Shoe Company (USC) Does Not Extend Credit to Any

Multiple Choice

The United Shoe Company (USC) does not extend credit to any retail shoe store with a "Fair" or "Limited" Dun and Bradstreet credit rating.As a result of this policy the company loses $36,500,000 in sales each year.Based on prior experience with these types of customers, USC estimates that the average collection period would be 120 days and the bad-debt loss ratio would be 10%.The firm's variable cost ratio is 0.75.USC's required pretax return on receivables investments is 18%.Determine the net change in pretax profits of extending credit to these retail shoe stores.(Assume 365 days per year in any calculations.)

A) $9,125,000
B) $3,315,000
C) -$1,095,000
D) $2,160,000