Joey Trading Co$.$ is evaluating extending credit to a new group of customers. Although these

customers will provide $$468,000$ in additional credit sales, $11$ percent are likely to be uncollectible.

The company will incur $$17,700$ in additional collection expenses. Production and marketing

expenses represent $76$ percent of sales. The company has a receivables turnover of five times. No

other asset buildup will be required to service the new customers. The firm has a $17$ percent desired

return on investment.

a$-1.$ Calculate the incremental income before taxes from this new group of customers.

Incremental income before taxes $

a$-2.$ Calculate the return on incremental investment. $($Round the final answer to $2$ decimal place.$)$

Return on incremental investment $\%$

a$-3.$ Should Joey extend credit to these customers?

Yes

No

b$-1.$ Calculate the incremental income before taxes from the new group of customers if $14$ percent of

the sales prove uncollectable.

Incremental income before taxes $

b$-2.$ Calculate the return on incremental investment if $14$ percent of the new sales prove

uncollectible. $($Round the final answer to $2$ decimal place.$)$

Return on incremental investment $\%$

b$-3.$ Should credit be extended if $14$ percent of the new sales prove uncollectible?

Yes

No

c$-1.$ Calculate the return on incremental investment if the receivables turnover drops to $1\mathrm{.}6$ and $11$

percent of the accounts are uncollectible $($as in part a$)?($Round the final answer to $2$ decimal

places.$)$

Return on incremental investment $\%$

c$-2.$ Should credit be extended if the receivables turnover drops to $1\mathrm{.}6$ and $11$ percent of the

accounts are uncollectible $($as in part a$)?$

Yes

No

Reconsider Joey Trading. Assume the average collection period is $120$ days. All other factors are

the same $($including $11$ percent uncollectible$).$

a$.$ Compute the return on incremental investment. $($Use $365$ days in a year. Do not round

intermediate calculations. Round the final answer to $2$ decimal places.$)$

Return on incremental investment $\%$

b$.$ Should credit be extended?

Yes

No