Fast Turnstiles Co. is evaluating the extension of credit to anew group of customers. Although these customers will provide$234,000 in additional credit sales, 15 percent are likely to beuncollectible. The company will also incur $16,500 in additionalcollection expense. Production and marketing costs represent 70percent of sales. The firm is in a 30 percent tax bracket and has areceivables turnover of four times. No other asset buildup will berequired to service the new customers. The firm has a 10 percentdesired return.
a-1. Calculate the incremental income aftertaxes.
a-2. Calculate the return on incrementalinvestment. (Input your answer as a percent rounded to 2decimal places.)
a-3. Should Fast Turnstiles Co. extend credit tothese customers?
Yes No
b-1. Calculate the incremental income after taxesif 18 percent of the new sales prove to be uncollectible.
b-2. Calculate the return on incrementalinvestment if 18 percent of the new sales prove to beuncollectible. (Input your answer as a percent rounded to 2decimal places.)
b-3. Should credit be extended if 18 percent ofthe new sales prove uncollectible?
Yes No
c-1. Calculate the return on incrementalinvestment if the receivables turnover drops to 1.6, and 15 percentof the accounts are uncollectible. (Input your answer as apercent rounded to 2 decimal places.)
c-2. Should credit be extended if the receivablesturnover drops to 1.6, and 15 percent of the accounts areuncollectible?
Fast Turnstiles Co. is evaluating the extension of credit to anew group of customers. Although these customers will provide$234,000 in additional credit sales, 15 percent are likely to beuncollectible. The company will also incur $16,500 in additionalcollection expense. Production and marketing costs represent 70percent of sales. The firm is in a 30 percent tax bracket and has areceivables turnover of four times. No other asset buildup will berequired to service the new customers. The firm has a 10 percentdesired return.
a-1. Calculate the incremental income aftertaxes.
a-2. Calculate the return on incrementalinvestment. (Input your answer as a percent rounded to 2decimal places.)
a-3. Should Fast Turnstiles Co. extend credit tothese customers?
| Yes | |
| No |
b-1. Calculate the incremental income after taxesif 18 percent of the new sales prove to be uncollectible.
b-2. Calculate the return on incrementalinvestment if 18 percent of the new sales prove to beuncollectible. (Input your answer as a percent rounded to 2decimal places.)
b-3. Should credit be extended if 18 percent ofthe new sales prove uncollectible?
| Yes | |
| No |
c-1. Calculate the return on incrementalinvestment if the receivables turnover drops to 1.6, and 15 percentof the accounts are uncollectible. (Input your answer as apercent rounded to 2 decimal places.)
c-2. Should credit be extended if the receivablesturnover drops to 1.6, and 15 percent of the accounts areuncollectible?
