Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $180,000 if credit were extended to these

image text in transcribed

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $180,000 if credit were extended to these new customers. Of the new accounts receivable generated, 6 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. The firm is in the 25 percent tax bracket. a. Compute the incremental income after taxes. Incremental income after taxes b. What will Johnson's incremental return on sales be if these new credit customers are accepted? (Input your answer as a percent rounded to 2 decimal places.) Incremental return on sales c. If the accounts receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson's incremental return on new average investment be? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Incremental return on new average investment

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

Advances In Entrepreneurial Finance

Authors: Rassoul Yazdipour

2011th Edition

148998190X, 978-1489981905

More Books

Students also viewed these Finance questions

Question

What is the difference between constants and variables?

Answered: 1 week ago