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 10 percent. Assume the average collection period is 60 days.

a. Compute the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.)
Return on incremental investment _____%

b. Should credit be extended to the new group of the customer?

	No
	Yes

Expert Solution

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Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers....

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