21. Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $100,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 3 percent of sales, and production and selling costs will be 79 percent of sales. a. Compute the incremental income before taxes. b. What will the firm's incremental return on sales be if these new credit customers are accepted? c. If the receivable turnover ratio is 6 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronies incremental return on new average investment be?
21. Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $100,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 3 percent of sales, and production and selling costs will be 79 percent of sales. a. Compute the incremental income before taxes. b. What will the firm's incremental return on sales be if these new credit customers are accepted? c. If the receivable turnover ratio is 6 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronies incremental return on new average investment be?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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am. 118.
Transcribed Image Text:21. Johnson Electronics is considering extending trade credit to some customers previously considered poor risks.
Sales would increase by $100,000 if credit is extended to these new customers. Of the new accounts receivable
generated, 10 percent will prove to be uncollectible. Additional collection costs will be 3 percent of sales, and
production and selling costs will be 79 percent of sales. a. Compute the incremental income before taxes. b.
What will the firm's incremental return on sales be if these new credit customers are accepted? c. If the receivable
turnover ratio is 6 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson
Electronies incremental return on new average investment be?
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