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please help! Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $108,000 in additional
please help!
Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $108,000 in additional credit sales, 8 percent are likely to be uncollectible. The company will also incur $15,800 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 30 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 8 percent desired return. a-1. Calculate the incremental income after taxes. a-2. Calculate the return on incremental investment. Note: Input your answer as a percent rounded to 2 decimal places. a-3. Should Fast Turnstiles Company extend credit to these customers? a-3. Should Fast Turnstiles Company extend credit to these customers? Yes No b-1. Calculate the incremental income after taxes if 11 percent of the new sales prove to be uncollectible. b-2. Calculate the return on incremental investment if 11 percent of the new sales prove to be uncollectible. Note: Input your answer as a percent rounded to 2 decimal places. b-3. Should credit be extended if 11 percent of the new sales prove uncollectible? Yes No c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 8 percent of the accounts are uncollectible. Note: Input your answer as a percent rounded to 2 decimal places. c-2. Should credit be extended if the receivables turnover drops to 1.6 and 8 percent of the accounts are uncollectible? Yes NoStep by Step Solution
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