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Unformatted text preview: 72,800-4,000=68,800 68,800-62,400=6,400 6,400*.30=1,920 6,400-1,920=4,480 4,480/16,000= 28% c. Should Collins liberalize credit if a 15 percent after tax return on investment is required? Yes because the increase is 28% and it is more than the required 15% Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is four times. CHECKPOINT: CREDIT POLICY DECISIONS 3 d. What would be the total incremental investment in accounts receivable and inventory to support an $80,000 increase in sales? 80,000/4= 20,000 20,000+16,000= 36,000 4,480/36,000= 12.44% e. Given the income determined in part b and the investment determined in part d, should Collins extend more liberal credit terms? No, they have a required 15% and this would only give them 12.44% and that would be less....
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- Spring '09
- Balance Sheet, credit policy decisions