credit policy decisions - Credit Policy Decisions Fin/200...

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Credit Policy Decisions Fin/200 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 to support this sales expansion? Investment in accounts receivable = 80,000 =16,000 5 b. What would be Collin'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
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credit policy decisions - Credit Policy Decisions Fin/200...

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