Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $216,000 in additional credit sales, 14 percent are likely to be uncollectible. The company will incur $16,400 in additional collection expenses. Production and marketing expenses represent 72 percent of sales. The company has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 16 percent desired return on investment.

a-1. Calculate the incremental income before taxes from this new group of customers

a-2. Calculate the return on incremental investment. (Round the final answer to 2 decimal place.)

a-3. Should Comiskey extend credit to these customers? Yes/No

b-1. Calculate the incremental income before taxes from the new group of customers if 17 percent of the sales prove uncollectable.

b-2. Calculate the return on incremental investment if 17 percent of the new sales prove uncollectible. (Round the final answer to 2 decimal place.)

b-3. Should credit be extended if 17 percent of the new sales prove uncollectible? Yes/No

c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 14 percent of the accounts are uncollectible (as in part a)? (Round the final answer to 2 decimal places.)

c-2. Should credit be extended if the receivables turnover drops to 1.6 and 14 percent of the accounts are uncollectible (as in part a)? Yes/No

c-3

Reconsider Comiskey Fence. Assume the average collection period is 72 days. All other factors are the same (including 14 percent uncollectible).

a. Compute the return on incremental investment. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

b. Should credit be extended. Yes/No