Question

In: Accounting

Randy Company is thinking about extending trade credit to new customers. This will increase the annual...

Randy Company is thinking about extending trade credit to new customers. This will increase the annual sales by $400,000 if credit is extended to these customers. Of the new accounts receivable related to these sales, 10% will be uncollectible. Additional collection costs will be 8% of sales. Besides, production and selling costs will be 85% of sales. The company is in a 40% tax bracket.

16. What is the amount of additional collection costs? *

a-$32,000

b- $40,000

c- $340,000

d- $400,000

e- None of the above

17. What is the profit on the new sales? *

a- $7,200

b- $12,000

c- $30,000

d- $400,000

e- None of the above

18. What is the percentage return on the new sales? *

a- 1.80%

b- 3%

c- 7.50%

d- 10%

e- None of the above

19. What is the amount of the new investment in accounts receivable if the accounts receivable are turned over 5 times a year? *

a- $40,000

b- $68,000

c- $80,000

d- $400,000

e- None of the above

20. What is the return on investment, assuming that the only new investment will be in accounts receivable? *

a- 9%

b- 10%

c- 15%

d- 30%

e- None of the above

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Kennedy Company is thinking about extending trade credit to new customers. This will increase the annual...

Kennedy Company is thinking about extending trade credit to new customers. This will increase the annual sales by $510,000 if credit is extended to these customers. Of the new accounts receivable related to these sales, 11% will be uncollectible. Additional collection costs will be 8% of sales. Besides, production and selling costs will be 65% of sales. The company is in a 30% tax bracket. 11. What is the amount of additional collection costs? $40,800 $56,100 $331,500 $510,000 None of...

Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers...

Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $324,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will incur $17,000 in additional collection expenses. Production and marketing expenses represent 72 percent of sales. The company has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 16 percent desired return on investment. a-1....

Bilbo Bags & Things makes fashionable handbags. They are considering extending trade credit to some customers...

Bilbo Bags & Things makes fashionable handbags. They are considering extending trade credit to some customers previously considered poor risks. The following estimations are made for this new customer base: Sales would increase by $100,000 if credit is extended to these new customers. Production and selling costs will be 80% of sales. All sales will be on credit, and 10% of them will prove to be uncollectible. Additional collection costs will be 5% of sales, and Customer Service costs will...

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would...

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $190,000 if credit were extended to these new customers. Of the new accounts receivable generated, 7 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 78 percent of sales. The firm is in the 30 percent tax bracket. a. Compute the incremental income after taxes. b. What will Johnson’s...

Research the Internet and find articles regarding extending credit to customers.

A company is thinking about changing its credit policy to attract customers away from competitors. The...

A company is thinking about changing its credit policy to attract customers away from competitors. The present policy calls for a 1.37/10, net 30 cash discount. The new policy would call for a 3.48/10, net 50 cash discount. Currently, 21% of its customers are taking the discount, and it is anticipated that this number would go up to 60% with the new discount policy. It is further anticipated that annual sales would increase from a level of $427k to $686k...

please comment on post The major advantage of extending credit sales is that it will increase...

please comment on post The major advantage of extending credit sales is that it will increase sales revenue. This is because customers who can't produce cash today are still able to buy the good or service of their choice. Extending credit sales is usually a good idea for businesses, but there are a few important factors to consider. First, the business needs sufficient cash flow to account for Cost of Goods Sold (inventory). Customers' payments may delayed, but suppliers still...

A new business owner is thinking about a new project that will hopefully increase sales for...

A new business owner is thinking about a new project that will hopefully increase sales for the company. What advice can you give the owner about capital budgeting?

Cost of Trade Credit Calculate the nominal annual cost of trade credit under each of the...

Cost of Trade Credit Calculate the nominal annual cost of trade credit under each of the following terms. Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places. 1/15, net 30. % 2/10, net 60. % 3/10, net 55. % 2/10, net 55. % 2/15, net 35. %

Cost of Trade Credit Calculate the nominal annual cost of nonfee trade credit under each of...

Cost of Trade Credit Calculate the nominal annual cost of nonfee trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. 1/10 net 20; 2/10 net 60; 3/10 net 45; 2/10 net 45; 2/10 net 40

Subjects