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?

multiple choice $1$

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 places.$)$

Return on incremental investment

$\%$

b$-3.$ Should credit be extended if $15$ percent of the new sales prove uncollectible?

multiple choice $2$

Yes

No

c$-1.$ Calculate the return on incremental investment if the receivables turnover drops to $1\mathrm{.}5$ and $12$ percent of the accounts are uncollectible $($as in part a$)?($Round the final answer to $2$ decimal places.$)$

Return on incremental investment

$\%$

c$-2.$ Should credit be extended if the receivables turnover drops to $1\mathrm{.}5$ and $12$ percent of the accounts are uncollectible $($as in part a$)?$

multiple choice $3$

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 $365$ days in a year. Do not round intermediate calculations. Round the final answer to $2$ decimal places.$)$

Return on incremental investment

$\%$

b$.$ Should credit be extended?

multiple choice $4$

Yes

No