Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Finance Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $324,000 in additional credit sales, 12

Finance

Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $324,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will incur $17,000 in additional collection expenses. Production and marketing expenses represent 72 percent of sales. The company has a receivables turnover of four 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. Incremental income before taxes $ a-2. Calculate the return on incremental investment. (Round the final answer to 2 decimal place.) Return on incremental investment % a-3. Should Cominsky extend credit to these customers? Yes No b-1. Calculate the incremental income before taxes from the new group of customers if 15 percent of the sales prove uncollectable. Incremental income before taxes $ b-2. Calculate the return on incremental investment if 15 percent of the new sales prove uncollectible. (Round the final answer to 2 decimal place.) Return on incremental investment % b-3. Should credit be extended if 15 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 12 percent of the accounts are uncollectible (as in part a)? (Round the final answer to 2 decimal places.) Return on incremental investment % c-2. Should credit be extended if the receivables turnover drops to 1.6 and 12 percent of the accounts are uncollectible (as in part a)? No Yes Problem 7-23 Reconsider Comiskey Fence. Assume the average collection period is 180 days. All other factors are the same (including 12 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.) Return on incremental investment % b. Should credit be extended? Yes No.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance An Integrated Planning Approach

Authors: Ralph R Frasca

8th edition

136063039, 978-0136063032

More Books

Students also viewed these Finance questions

Question

Describe Berkeleys objection to primary qualities.

Answered: 1 week ago