Collins Office Materials is considering a more generous credit policy to increase product sales, but needs that on the lookout for percent of the new accounts will be uncollectible. Collection costs are 5% of new product sales, production and selling costs are 80 percent, and accounts receivable turnover is usually five times. Suppose income taxes of 30 percent and an increase in revenue of $80, 000. Not any other advantage buildup will be required to services the new accounts. a. What is the level of accounts receivable needed to support this sales enlargement? Investment in Accounts receivables = 70, 000/ your five = $16, 000
w. What can be Collins's incremental aftertax return on investment?
Much less Accounts uncollectible (9% of 80, 500 new sales)
Annual pregressive revenue
seventy two, 800
Much less collection costs (5% of 80, 000 new sales)
Less creation and advertising costs (78% of 85, 000)
Annual income before fees
6, 4 hundred
Less Income taxes (30%)
Incremental salary after taxes
Return about incremental investment = some, 480/ sixteen, 000 = 28%
c. Should Collins liberalize credit rating if a 15 percent aftertax return on investment is needed? Assume Collins also needs to boost its amount of inventory to aid new sales and that products on hand turnover is usually four instances. Yes, Collins should liberalize the credit rating policy as the return on investment is 28% which is more than the required price of go back is 15%.
d. What would be the total incremental purchase in accounts receivable and inventory to support an $80, 000 increase in sales? Expense in products on hand = 70, 000 / 4 sama dengan $20, 1000
Accounts receivables16, 000
Total incremental investment36, 000
Come back on gradual investment sama dengan 4, 480/ 36, 1000 = 12. 44%
electronic. Given the income determined in part b and the investment determined simply d, will need to Collins prolong more open-handed credit terms? No, Collins should not expand more open-handed credit...
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