Eubank Electronics expects to have sales this year of $15 million under it's current credit policy. The present terms are net 30; the DSO is 60 days; and the bad deb loss percentage is 5 percent. Since Databank wants to improve its profitability, it has been proposed that the credit period be shortened to 15 days. This change would reduce expected sales by $500,000, but shorten the collection period on the remaining sales to 30 days. Expected bad debt losses on remaining sales would fall to 3 percent.

A) If the variable cost percentage is 60 percent and the cost of capital is 15 percent, what is the change in incremental pre-tax profits from this proposal?

NOTE: I'm having trouble setting up the equation, figuring out which of these numbers represent the current policy and proposal's terms, figuring out the percent paying to take the discount for the current policy and proposal, the collection expense for both. Otherwise I could probably figure out this problem! Thanks