Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $180,000 if credit is extended to these new customers. Of the new accounts receivable generated, 6 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. The firm is in the 25 percent tax bracket. (a) Compute the incremental income after taxes. (Omit the "$" sign in your response.) Incremental income after taxes $ (b) What will Johnson
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $180,000 if credit is extended to these new customers. Of the new accounts receivable generated, 6 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. The firm is in the 25 percent tax bracket. (a) Compute the incremental income after taxes. (Omit the "$" sign in your response.) Incremental income after taxes $ (b) What will Johnson
Related questions
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?
