Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although...

Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $486,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $17,800 in additional collection expense. Production and marketing costs represent 75 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percent desired return. a-1. Calculate the incremental income after taxes. a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.) a-3. Should Fast Turnstiles Co. extend credit to these customers? Yes No b-1. Calculate the incremental income after taxes if 15 percent of the new sales prove to be uncollectible. b-2. Calculate the return on incremental investment if 15 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 15 percent of the new sales prove uncollectible? Yes No c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.5, and 12 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 1.5, and 12 percent of the accounts are uncollectible? Yes No

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