This problem is to be used for the next eight questions of the exam

The PARA company sales are $2 Million its variable costs are 65 percent of sales and excess capacity would permit a substantial expansion in sales without additional fixed costs. Management is considering a change in credit policy, and you are asked to analyze the potential benefits of the change. Currently, the company sells on terms of 2/10 net 30. Twenty percent of its customers take the discount with the remaining paying on average in 40 days. Bad debt losses are running at 4% of sales. The costs of capital tied up in receivables is 15 percent.

Para is considering changing the terms of trade from 2/10 net 30 to 5/10 net 30. Half of PARA's customers will take the new discount and pay on the 10^th day. The other half will have an ACP of 40 days. Sales will increase by $600,000 and bad debt losses will decline to 3% of total sales.

1.Recall:

Change in profits = change in due to sales + change due to bad debts + change due to discounts

Without consideration of bad debts and the discount what is the change in profits from new customers?