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This is the before tax increase in profit. The question asks for the after tax increase in profit. See the correct answer for a complete explanation.
This answer does not include the $5,000 of collection costs. See the correct answer for a complete explanation.
This is the amount of the tax expense, not the increase in income. See the correct answer for a complete explanation.
If the company increases sales by $100,000, they will also increase their manufacturing and selling expenses by 70% of the amount of sales, or $70,000. This leaves the company with $30,000 before taking into account the bad debt expense and the collection costs. The bad debt expense is 15% of the amount of sales and collection expense is 5%. In total, this will be $20,000 (20% of the $100,000 increase in sales). This reduces the before tax profit to $10,000. The tax rate is 40%, so after-tax profits will be only $6,000 if the company increases sales by $100,000.