2010-11-18_004112_collins_office_supplies

2010-11-18_004112_collins_office_supplies -...

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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 receivables = 80,000/ 5 = $16,000 b. What would be Collins’s incremental aftertax return on investment?  Particulars Amoun t Increase in sales 80,000 Less Accounts uncollectible (9% of 80,000 new  sales) -7,200 Annual incremental revenue 72,800 Less collection costs (5% of 80,000 new sales) -4,000 Less production and selling costs (78% of 
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2010-11-18_004112_collins_office_supplies -...

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