Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Henderson Office Supplies is considering a more liberal credit policy to increase sales, but it expects that 6 percent of the new accounts will be

Henderson Office Supplies is considering a more liberal credit policy to increase sales, but it expects that 6 percent of the new accounts will be uncollectible. Collection costs are 5percent of new sales, production costs are 80 percent of sales, and accounts receivable turnover is five times. Assume an increase in sales of $74,000. No other asset buildup will be required to service the new accounts.

a.What is the level of investment in accounts receivable to support this sales expansion?

Investment in accounts receivable________$

b.What would be Henderson's incremental beforetax return on investment?

Return on incremental investment__________-%

c.Should Henderson liberalize credit if a 30 percent beforetax return is required (opportunity cost of capital)?

multiple choice 1

  • Yes
  • No

Assume Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is five times on Cost of Goods Sold.

d.What would be the total incremental investment in accounts receivable and inventory to support a $74,000 increase in sales?

Total incremental investment_________$

e.Given the income determined in partband the investment determined in partd, should Henderson extend more liberal credit terms?

multiple choice 2

  • 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

Analysis for Financial Management

Authors: Robert C. Higgins

10th edition

007803468X, 978-0078034688

More Books

Students also viewed these Finance questions

Question

find all matrices A (a) A = 13 (b) A + A = 213

Answered: 1 week ago

Question

Why is real-time information not good enough for effective control?

Answered: 1 week ago