Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percent desired return. b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible. Incremental income after taxes b-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible. Note: Input your answer as a percent rounded to 2 decimal places. Return on incremental investment b-3. Should credit be extended if 13 percent of the new sales prove uncollectible? O Yes O No % c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible. Note: Input your answer as a percent rounded to 2 decimal places. Return on incremental investment
Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percent desired return. b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible. Incremental income after taxes b-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible. Note: Input your answer as a percent rounded to 2 decimal places. Return on incremental investment b-3. Should credit be extended if 13 percent of the new sales prove uncollectible? O Yes O No % c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible. Note: Input your answer as a percent rounded to 2 decimal places. Return on incremental investment
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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Subject:- finance
Transcribed Image Text:Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide
$144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additional
collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket and has a
receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percent
desired return.
b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible.
Incremental income after taxes
b-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible.
Note: Input your answer as a percent rounded to 2 decimal places.
Return on incremental investment
b-3. Should credit be extended if 13 percent of the new sales prove uncollectible?
Yes
O No
c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts are
uncollectible.
Note: Input your answer as a percent rounded to 2 decimal places.
Return on incremental investment
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