Question
Mountain Home Systems Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The frim is currently debating whether to
Mountain Home Systems Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The frim is currently debating whether to expand its sales to car-telephone manufacturers. While the firm expects an extra $3 million in sales if it enters this market, it also knows that 15% of its sales will ultin=mately be uncollectible. In addition, collection costs will be 3% on all new sales, and the firm's production and selling costs are 80% of sales. Mountain Home's tax rate is 30%. a) calculate Mountain Home's additional net income from the new sales. b)If Mountain Home can turn its receivables over four times per year, what will its additional investment in accounts receivable be and what will the firm earn as an after-tax return on that investment? c) Mountain Home management requires that any new project earn a minimum of 10% return on investment. Should the firm enter the car-telephone manufacturer market?
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