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
b. What would be Collins’s incremental aftertax return on investment?
c. Should Collins liberalize credit if a 15 percent aftertax return on investment
Assume Collins also needs to increase its level of inventory to support
new sales and that inventory turnover is four times.
d. What would be the total incremental investment in accounts receivable and
inventory to support an $80,000 increase in sales?
e. Given the income determined in part b and the investment determined in
part d, should Collins extend more liberal credit terms?
Recently Asked Questions
- Product Knowledge may include :
- Please refer to the attachment to answer this question. This question was created from Mod11_HW.pdf. Additional comments: "I am using matlab to solve this, but
- Tai is normally a very quiet and withdrawn young Malaysian man . Without warning , he severely injured a person sitting at a table near him in a restaurant .