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Unformatted text preview: Return on investment = net Income/ Account receivables = 8512 / 16000 = 53.2% c. Should Collins liberalize credit if a 15 percent after tax return on investment is required? Yes Collins should consider the liberal credit policy Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is four times. d. What would be the total incremental investment in accounts receivable and inventory to support an $80,000 increase in sales? Investment in inventory = 80000 /4 = 20000 Total incremental investment Inventory $20,000 Accounts receivable 16,000 Incremental investment $36,000 e. Given the income determined in part b and the investment determined in part d, should Collins extend more liberal credit terms? ROI = net income / Investment = 8512 /36000 = 23.64% Yes Collins should still consider the investment...
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- Spring '10
- Balance Sheet, liberal credit policy