21. Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $342,000 in additional credit
21. Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $342,000 in additional credit sales, 13 percent are likely to be uncollectible. The company will also incur $17,100 in additional collection expense. Production and marketing costs represent 73 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return.
a-1. Calculate the incremental income after taxes.
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| Incremental income after taxes | | |
a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.)
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| Return on incremental investment | | % | |
b-1. Calculate the incremental income after taxes if 16 percent of the new sales prove to be uncollectible
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| Incremental income after taxes | | |
b-2. Calculate the return on incremental investment if 16 percent of the new sales prove to be uncollectible. (Input your answer as a percent rounded to 2 decimal places.)
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| Return on incremental investment | | % | |
c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 13 percent of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.)
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| Return on incremental investment | | % | |