Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 7, Problem 20P
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide
a. Compute the
b. Should credit be extended?
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Students have asked these similar questions
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers.
Although these customers will provide $180,000 in additional credit sales, 12 percent
are likely to be uncollectible. The company will also incur $16,200 in additional
collection expense. Production and marketing costs represent 72 percent of sales. The
firm is in a 34 percent tax bracket. No other asset buildup will be required to service the
new customers. The firm has a 10 percent desired return. Assume the average
collection period is 120 days.
a. Compute the return on incremental investment
b. Should credit be extended?
1
i B IF T
111
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $288,000
in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,800 in additional collection
expense. Production and marketing costs represent 70 percent of sales. The firm is in a 25 percent tax bracket. No other asset buildup
will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 72
days.
a. Compute the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places. Use a 360-day
year.)
Return on incremental investment
%
b. Should credit be extended to the new group of customers?
No
Yes
Need help pleasee!! Will up votee!!
Chapter 7 Solutions
Foundations of Financial Management
Ch. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Why would a financial manager want to slow down...Ch. 7 - Use The Wall Street Journal or some other...Ch. 7 - Why are Treasury bills a favorite place for...Ch. 7 - Explain why the bad debt percentage or any other...Ch. 7 - What are three quantitative measures that can be...Ch. 7 - Prob. 8DQCh. 7 - What does the EOQ formula tell us? What assumption...Ch. 7 - Why might a firm keep a safety stock? What effect...
Ch. 7 - If a firm uses a just-in-time inventory system,...Ch. 7 - City Farm Insurance has collection centers across...Ch. 7 - Prob. 2PCh. 7 - Orbital Communications has operating plants in...Ch. 7 - Postal Express has outlets throughout the world....Ch. 7 - Thompson Wood Products has credit sales of...Ch. 7 - Oral Roberts Dental Supplies has annual sales of...Ch. 7 - Knight Roundtable Co. has annual credit sales of...Ch. 7 - Darla’s Cosmetics has annual credit sales of...Ch. 7 - Barney’s Antique Shop has annual credit sales of...Ch. 7 - Mervyn’s Fine Fashions has an average collection...Ch. 7 - Route Canal Shipping Company has the following...Ch. 7 - Nowlin Pipe & Steel has projected sales of 72,000...Ch. 7 - Fisk Corporation is trying to improve its...Ch. 7 - Prob. 14PCh. 7 - Diagnostic Supplies has expected sales of 84,100...Ch. 7 - Wisconsin Snowmobile Corp. is considering a switch...Ch. 7 - Johnson Electronics is considering extending trade...Ch. 7 - Henderson Office Supply is considering a more...Ch. 7 - Fast Turnstiles Co. is evaluating the extension of...Ch. 7 - Slow Roll Drum Co. is evaluating the extension of...Ch. 7 - Global Services is considering a promotional...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...
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