Archer Precision is thinking about extending trade credit to new customers. Credit sales for the year would increase by

$75,000 if credit were extended to these customers. Of those additional sales, 8% would be uncollectible. Archer would

incur additional collection cost equal to 5% of additional sales, and production and selling cost would remain at 80% of

sales. The firm is in a 30% tax bracket.

a. Calculate the incremental earnings after taxes.

b. Calculate the additional accounts receivable that would be created with these new credit sales. Average collection

period is 30 days.

c. Calculate the return on investment (investment = amount of additional accounts receivable from part b; or use

$75,000)

d. If the minimum required return on investment is 15%, did the company make a good decision by extending cred

to new customers?