Price Corp. is considering selling to a group of new customers and creating new annual sales of
Question:
Price Corp. is considering selling to a group of new customers and creating new annual sales of $50,000. It is estimated that 5% of these new sales will be uncollectible. The collection cost on these accounts is 3.5%, the cost of producing and selling is 80% of sales, and the firm is in the 30% tax bracket. The company has an accounts receivables turnover of 4 and an inventory turnover of 5. The only new investments will be in accounts receivables and inventory. If management requires a 20% minimal return on investment (ROI) for all new initiatives, will Price Corp. make the sales to the new customers?
Select one:
A. Yes, because ROI is expected to exceed 20%
B. No, because ROI is expected to be less than 20%
C. Yes, because ROI is expected to be exactly equal to 20%
D. The answer cannot be determined from the information provided