FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Animal Kingdom is evaluating the extension of credit to a new grouo of customers. Although these customers will provide P240,000 in additional credit sales, 12% are likely to be uncollectible. The company will also incur P21,000 in additional collection expense. Production and marketing costs represent 72% of sales. The firm is in a 30% tax bracket and has a receivables turnover of six times. No other asset build up will be required to service the new customers. The firm has a 10% desired return on investment.

Should it extend credit to these customers and should credit be extended if the receivables tumover drops to 1.5 and all other factors are the same?

Can you please show me an explanation and a solution for this? Thank you so much!

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