2009-05-27_230441_Collins_Office_Supplies-Answer_Key

2009-05-27_230441_Collins_Office_Supplies-Answer_Key -...

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ANSWER KEY: a. Investment in accounts receivable = 000 , 16 $ 5 000 , 80 $ = 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. ............................................ $ 6,400
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Unformatted text preview: 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 = 000 , 20 $ 4 000 , 80 $ = 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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This note was uploaded on 06/20/2011 for the course ACCT 101 taught by Professor Joannes during the Spring '11 term at Aarhus Universitet.

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