Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 7 . 2 3 Comiskey Fence Co . is evaluating extending credit to a new group of customers. Although these customers will provide $

Problem 7.23
Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $180.000 in additional credit sales, 12 percent are likely to be uncollectible. The company will incur $15,700 in additional collection expenses. Production and marketing expenses represent 70 percent of sales. The company has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 15 percent desired return on investment.
a-1. Calculate the incremental income before taxes from this new group of customers.
Incremental income before taxes
a-2. Calculate the return on incremental investment. (Round the final answer to 2 decimal places.)
Return on incremental investment
a-3. Should Cominsky extend credit to these customers?
Yes
No
b-1. Calculate the incremental income before taxes from the new group of customers if 15 percent of the sales prove uncollectable. Incremental income before taxes $
b-2. Calculate the return on incremental investment if 15 percent of the new sales prove uncollectible. (Round the final answer to 2 decimal plocess.)
Return on incremental investment 86
b-3. Should credit be extended if 15 percent of the new sales prove uncollectible?
Yes
No
c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.5 and 12 percent of the accounts are uncollectible (as in part a)?(Round the final answer to 2 decimal pleces.)
Return on incremental investment
e-2. Should credit be extended if the receivables turnover drops to 1.5 and 12 percent of the accounts are uncollectible (as in part a)?
Yes
No
Problem 7-24
Reconsider Comiskey Fence. Assume the average collection period is 120 days. All other factors are the same (including 12 percent uncollectible).
a. Compute the return on incremental investment. (Use 365 deys in a year. Do not round intermediate calculetions. Round the tinal onswer to 2 decimal places.)
Return on incremental investment 96
b. Should credit be extended?
Yes
No
image text in transcribed

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

Personal Finance

Authors: Jeff Madura

3rd Edition

0321357973, 978-0321357977

More Books

Students also viewed these Finance questions

Question

Why do some people resist change?

Answered: 1 week ago