Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 5 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 77 percent, and the accounts receivable turnover is five times. Assume income taxes of 20 percent and an increase in sales of $79,000. 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?

b. What would be Hendersons incremental aftertax return on investment? (Input your answer as a percent rounded to 2 decimal places.)

c. Should Henderson liberalize credit if a 20 percent aftertax return on investment is required?

	Yes
	No

Assume that Henderson also needs to increase its level of inventory to support new sales and that the inventory turnover is four times. d. What would be the total incremental investment in accounts receivable and inventory needed to support a $79,000 increase in sales?

e. Given the income determined in part b and the investment determined in part d, should Henderson extend more liberal credit terms?

	No
	Yes

so 7 s but aounts e5 peicen 77 peicen we tmes. Assume Income taxes of 20 percent and an In:rease In sales of S79,000. No other asset buldup will be required to service the new accounts. ccs lion cosis a. What adciion vestment in accounts recevable is needed to support this sales expansion adtilio l accounts receivable (Input yo percent rounded b. Wal wcnald ee Heress incrareal allerx relurr 1n iresirvenl (Input your answer as a percent rounded to 2 decimal places.) Reiumor incremental rrestment L-% ! c. Should Henderson liberallze cred if a 20 percent aftertax return on investment is required? of invenrory t0 5 Assume thar Henderson also reeds to incrense ins level ot imenrory To suppor new sales and that the invenory tumower is tour times d. What would be the total incremental investrment in eccounts receivable and inventary S79,000 increese n sales? Lotal incramental mastmert otal incremental mvestment m needed to support ecesveble and e. Given t e. Given the income datermined in part b and the Investment cotermined in part d, should Henderson extend more ibaral crocit tems? Inves d, should temms? O No