Mountain Home Systems, Inc. is debating whether to expand its sales in a new market. Sales are currently $5,000,000 annually, but MHS Inc. expects sales to increase to $7,000,000 annually if it enters this market. MHS Inc. also knows that 15% of its sales are ultimately be uncollectible. In addition, collection costs will be 2% of sales and the firm's production costs are 72% of sales. Selling expenses are 8% of sales and Mountain Home has an opportunity cost of funds (before tax) of 20%. Mountain Home can turn its receivables 5 times per year. Should Mountain Home Systems Co. enter the new market?

The incremental contribution margin is:

560,000

1,400,000

1,440,000

1,960,000

The incremental bad debt expense is:

(300,000)

300,000

1,050,000

(1,050,000)

The incremental selling expenses are:

(160,000)

(400,000)

560,000

(560,000

The change in accounts receivable is:

400,000

(400,000)

1,400,000

(1,400,000)