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Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $ 1 9 8 ,

Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $198,000 in additional credit sales, 13 percent are likely to be uncollectible. The company will also incur $16,300 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.
Note: Input your answer as a percent rounded to 2 decimal places.
a-3. Should Fast Turnstiles Company extend credit to these customers?
multiple choice 1
Yes
No
b-1. Calculate the incremental income after taxes if 16 percent of the new sales prove to be uncollectible.
b-2. Calculate the return on incremental investment if 16 percent of the new sales prove to be uncollectible.
Note: Input your answer as a percent rounded to 2 decimal places.
b-3. Should credit be extended if 16 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 1.5 and 13 percent of the accounts are uncollectible.
Note: Input your answer as a percent rounded to 2 decimal places.
c-2. Should credit be extended if the receivables turnover drops to 1.5 and 13 percent of the accounts are uncollectible?
multiple choice 3
Yes
No

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