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 7 percent of the new accounts will be uncollectible.

image text in transcribed
image text in transcribed
Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 7 percent of the new accounts will be uncollectible. Collection costs are 2 percent of new sales, production and selling costs are 79 percent, and accounts receivable turnover is two times. Assume income taxes of 30 percent and an increase in sales of $81,000. No other asset buildup will be required to service the new accounts. a. What additional investment in accounts recelvable is needed to support this sales expansion? b. What would be Henderson's incremental aftertax return on investment? Note: Input your answer as a percent rounded to 2 decimal places. c. Should Henderson liberalize credit if a 14 percent aftertax return on investment is required? Yes No c. Should Henderson Tiberalize credit if a 14 percent aftertax return on investment is required? Yes No d. Assume that Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is five times. What would be the total incremental investment in accounts receivable and inventory needed to support a $81.000 increase in soles? e. Glven the income determined in psrt b and the investment determined in part d, should Henderson extend more liberal credit terms

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

Real Estate Finance

Authors: Walt Huber, Levin P. Messick

5th Edition

0916772438, 9780916772437

More Books

Students also viewed these Finance questions

Question

Define self-esteem and discuss its impact on your life.

Answered: 1 week ago