Can you please solve this accounting question ? Johnson Electronics is considering extending trade credit to somecustomers previously considered poor risks. Sales would increaseby $100,000 if credit is extended to these customers. Of the newaccounts receivable generated, 10 percent will prove to beuncollectible. Additional collection costs will be 3 percent of sales,and production and selling costs will be 79% of sales.a. Compute the incremental income before taxes.b. What will be the firm's incremental return on sales be if these newcredit customers are accepted? (Round answer to 1 decimal place.)c. If the receivable turnover ratio is 6 to 1, and no other asset buildupis needed to serve the new customers, what will JohnsonElectronics' incremental return on new average investment be?(Round answer to the nearest whole percentage.)

Step 1: Define SalesSales refers to the act of providing goods and services to an individual or…

Answered: Johnson Electronics is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 10P

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Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. 1. Compute the incremental income before taxes. 2. What will the firm’s incremental return on sales be if these new credit customers are accepted? (Round final answer to 2 decimals) 3. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson Electronics’ incremental return on new average investment be? (Round only the final answer to %)
Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $200,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes. 1.Compute the incremental income after taxes that would result from these projections: 2.Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed to serve the new customers… 3.Compute the additional investment in Accounts Receivable 4.Compute the incremental Return on New Investment…
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