Henderson

Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 4 percent of new sales, production and selling costs are 75 percent, and the accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $83,000. No other asset buildup will be required to service the new accounts. a. What additional investment in accounts receivable is needed to support this sales expansion? Incremental accounts receivable b. What would be Henderson's incremental aftertax return on investment? (Input your answer as a percent rounded to 2 decimal places.) Return on incremental investment c. Should Henderson liberalize credit if a 15 percent aftertax return on investment is required? Yes No