Question

In: Finance

Problem 7-19 Credit policy decision with changing variables [LO7-4] Fast Turnstiles Co. is evaluating the extension...

Problem 7-19 Credit policy decision with changing variables [LO7-4] Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $306,000 in additional credit sales, 11 percent are likely to be uncollectible. The company will also incur $16,900 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 30 percent tax bracket and has a receivables turnover of three 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 14 percent of the new sales prove to be uncollectible. b-2. Calculate the return on incremental investment if 14 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 14 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 11 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 11 percent of the accounts are uncollectible? No Yes

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

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 $270,000 in additional credit sales, 9 percent are likely to be uncollectible. The company will also incur $16,700 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....
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 $126,000 in additional credit sales, 9 percent are likely to be uncollectible. The company will also incur $15,900 in additional collection expense. Production and marketing costs represent 70 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....
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....
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 $180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $16,200 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 34 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers....
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 $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....
Problem 7-20 Evaluating the Profitability of Services [LO7-2, LO7-3, LO7-4, LO7-5] Gallatin Carpet Cleaning is a...
Problem 7-20 Evaluating the Profitability of Services [LO7-2, LO7-3, LO7-4, LO7-5] Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.95 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time....
Problem 7-20 Evaluating the Profitability of Services [LO7-2, LO7-3, LO7-4, LO7-5] Gallatin Carpet Cleaning is a...
Problem 7-20 Evaluating the Profitability of Services [LO7-2, LO7-3, LO7-4, LO7-5] Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.75 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time....
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers....
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a desired return of...
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers....
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $522,000 in additional credit sales, 14 percent are likely to be uncollectible. The company will also incur $18,000 in additional collection expenses. Production and marketing costs represent 71 percent of sales. The firm is in a 25 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a desired return of...
Problem 7-27A Completing a Master Budget [LO7-2, LO7-4, LO7-7, LO7-8, LO7-9, LO7-10] The following data relate...
Problem 7-27A Completing a Master Budget [LO7-2, LO7-4, LO7-7, LO7-8, LO7-9, LO7-10] The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:      Current assets as of March 31:      Cash $ 8,000      Accounts receivable $ 20,000      Inventory $ 36,000   Building and equipment, net $ 120,000   Accounts payable $ 21,750   Capital stock $ 150,000   Retained earnings $ 12,250    a. The gross margin is 25% of sales. b. Actual and budgeted sales data:      March...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT