Samantha Karp Credit Policy Decisions

Samantha Karp Credit Policy Decisions - $ 6,400 Taxes (30%).

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Samantha Karp Credit Policy Decisions 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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