Credit Policy Decisions

Credit Policy Decisions - Name: Georgia Moore Date:...

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Name: Georgia Moore Date: 03/25/2011 Assignment: Credit Policy Decisions Collins Office Supplies is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 78 percent, and accounts receivable turnover is five times. Assume income taxes of 30 percent and an increase in sales of $80,000. No other asset buildup will be required to service the new accounts. A. What is the level of accounts receivable needed to support this sales expansion? Investment in accounts receivable = B. What would be Collins’s incremental after tax return on investment? 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
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This note was uploaded on 05/13/2011 for the course FIN 200 taught by Professor Williams during the Spring '08 term at University of Phoenix.

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Credit Policy Decisions - Name: Georgia Moore Date:...

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