Week6 Credit Checkpoint FIN 200

Week6 Credit Checkpoint FIN 200 - c Yes; because the...

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Gregory Mann FIN 200 a Required Level of A/R = Increase in Sales / Accounts Receivable Turnover Required Level of A/R = $80,000 / 5 Required Level of A/R = $16,000 b Increase in Sales $ 80,000 Uncollectible Accounts (9%) (7,200) Collection Cost (5%) (4,000) Production and Selling Cost (78%) (62,400) Incremental Gross Income $ 6,400 Income Tax (1,920) Incremental Net Income $ 4,480 Incremental After Tax Return on Investment (ROI) = Incremental Net Income / Required Level of Accounts Receivable Incremental After Tax ROI = $4,480 / $16,000 Incremental After Tax ROI = 28%
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Unformatted text preview: c Yes; because the incremental after-tax ROI exceeds the required return. return of 15 % d Required Level of Inventory = Increase in Sales / Inventory Turnover Required Level of Inventory = $80,000 / 4 Required Level of Inventory = $20,000 Required Level of A/R $ 16,000 Required Level of Inventory 20,000 Total Incremental Investment $ 36,000 Gregory Mann FIN 200 e No; because the incremental after-tax ROI less than the required return. Incremental After Tax ROI = $4,480 / $36,000 Incremental After Tax ROI = 12.44%...
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Week6 Credit Checkpoint FIN 200 - c Yes; because the...

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