In: Accounting
Fast Turnstiles Co. is evaluating the extension of credit to a
new group of customers. Although these customers will provide
$216,000 in additional credit sales, 14 percent are likely to be
uncollectible. The company will also incur $16,400 in additional
collection expense. Production and marketing costs represent 72
percent of sales. The firm is in a 20 percent tax bracket and has a
receivables turnover of five times. No other asset buildup will be
required to service the new customers. The firm has a 8 percent
desired return.
b-2. Calculate the return on incremental
investment if 17 percent of the new sales prove to be
uncollectible. (Input your answer as a percent rounded to 2
decimal places.)
b-3. Should credit be extended if 17 percent of
the new sales prove uncollectible?
Yes | |
No |
c-1. Calculate the return on incremental
investment if the receivables turnover drops to 1.6, and 14 percent
of the accounts are uncollectible. (Input your answer as a
percent rounded to 2 decimal places.)
c-2. Should credit be extended if the receivables
turnover drops to 1.6, and 14 percent of the accounts are
uncollectible?
No | |
Yes |