Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 6 percent of the new accounts will be uncollectible.

image text in transcribedimage text in transcribedimage text in transcribed

Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 6 percent of the new accounts will be uncollectible. Collection costs are 4 percent of new sales, production and selling costs are 79 percent, and accounts receivable turnover is four times. Assume income taxes of 35 percent and an increase in sales of $62,000. 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 O 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 $62,000 increase in sales? Total incremental investment d. What would be the total incremental investment in accounts receivable and inventory needed to support a $62,000 increase in sales? Total incremental investment e. Given the income determined in part band the investment determined in part d, should Henderson extend more liberal credit terms? Yes O 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_2

Step: 3

blur-text-image_3

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

A Course In Derivative Securities

Authors: Kerry Back

2005th Edition

3540253734, 978-3540253730

More Books

Students also viewed these Finance questions