- 10 ' Lo` Format as Table* Paste B U| +| abe X 2 X ? || Q .| ~| - A - Paragraph Styles Clipboard Font Alignment Number Lo` Cell Styles* Cells E12 X V fox Proposal # 1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks . Sales are projected to increase by $120 , 000 per year if A B C D E credit is extended to these new customers . Of the new accounts receivable generated , 6% are* Extending trade credit projected to be uncollectible . Additional collection costs are projected to be 5% of incremental sales , I 2 Sales increase 120 , 000 120 , 000 and production and selling costs are projected to be 80% of sales . Your firm expects to pay a total of 3\\ Uncollectible* 7200 30% of its income after expenses in taxes . %9 4 incremental revenue 112 , 800 \\Additional Collection costs 5% 6000 1 ) Compute the incremental income after taxes that would result from these projections :" 6| Production and Selling cost 80% 96000 7\\ Additional income before taxes 2 ) Compute the incremental Return on Sales if these new credit customers are accepted :" 10 , 800 8 tax rate 30% 3240 If the receivable turnover ratio is expected to be 4 to 1 and no other asset buildup is needed 9 \\Q 1 ) incremental income after taxes 7, 560 to serve the new customers ... 10 Q 2 ) incremental return on sales 6. 30% 3) Compute the additional investment in Accounts Receivable 11 Q 3 ) Incremental A / R 4 ) Compute the incremental Return on New Investment 12 \\ Q 4 ) Return on incremental investment* 13 Q5 ) Yes / No . The rate is more / less than the required 20% rate of return . 5 ) If your company requires a 20% Rate of Return on Investment for all proposals , do the 14 numbers suggest that trade credit should be extended to these new customers ? Explain . 15