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Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $144,000 in additional credit sales,
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percent desired return. a-1. Calculate the incremental income after taxes. a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.) a-3. Should Fast Turnstiles Co. extend credit to these customers? b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible. b-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible. (Input your answer as a percent rounded to 2 decimal places.) b-3. Should credit be extended if 13 percent of the new sales prove uncollectible? multiple choice 2 Yes No c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.) c-2. Should credit be extended if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible? yes or no
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percent desired return.
a-1. Calculate the incremental income after taxes.
a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.)
a-3. Should Fast Turnstiles Co. extend credit to these customers?
b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible.
b-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible. (Input your answer as a percent rounded to 2 decimal places.)
b-3. Should credit be extended if 13 percent of the new sales prove uncollectible?
multiple choice 2
Yes
No
c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.)
c-2. Should credit be extended if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible?
yes or no
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