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Fin200-Week 6-CheckPoint - $ 6,400 Taxes(30 – 1,920...

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FIN/200 Week 6 CheckPoint a. Investment in accounts receivable = b. Added sales .................................................................... $ 80,000 Accounts uncollectible (9% of new sales) ...................... 7,200 Annual incremental revenue ........................................ $ 72,800 Collection costs (5% of new sales) ................................. 4,000 Production and selling costs (78% of new sales) ........................................................ – 62,400 Annual income before taxes ..........................................
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Unformatted text preview: $ 6,400 Taxes (30%). ................................................................... – 1,920 Incremental income after taxes. ................................... $ 4,480 Return on incremental investment = $4,480/$16,000 = 28% c. Yes! 28% exceeds the required return of 15%. d. Investment in inventory = Total incremental investment Inventory $20,000 Accounts receivable 16,000 Incremental investment $36,000 $4,480/$36,000 = 12.44% return on investment e. No! 12.44% is less than the required return of 15%....
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