Financial Accounting Omega Appliances is considering extending trade credit to some customerspreviously considered poor risks. Sales would increase by $150,000 if credit isextended to these customers. Of the new accounts receivable generated, 8percent will prove to be uncollectible. Additional collection costs will be 4percent of sales, and production and selling costs will be 82% of sales.a. Compute the incremental income before taxes.b. What will the firm's incremental return on sales be if these new creditcustomers are accepted? (Round to 1 decimal place.)c. If the receivable turnover ratio is 8 to 1, and no other asset build up is neededto serve the new customers, what will Omega Appliances' incremental return onnew average investment be? (Round to the nearest whole percentage.)

Let's solve each part step by step: a. Compute the incremental income before taxes. Given:Sales…

Answered: Omega Appliances 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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