Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $450,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will incur $17,600 in additional collection expenses. Production and marketing expenses represent 78 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 16 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 place.) Return on incremental investment %

a-3. Should Cominsky extend credit to these customers? Yes or No

b-1. Calculate the incremental income before taxes from the new group of customers if 13 percent of the sales prove uncollectable. Incremental income before taxes $

b-2. Calculate the return on incremental investment if 13 percent of the new sales prove uncollectible. (Round the final answer to 2 decimal place.) Return on incremental investment % b-3. Should credit be extended if 13 percent of the new sales prove uncollectible? Yes or No

c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 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 1.6 and 10 percent of the accounts are uncollectible (as in part a)? Yes or No

Problem 7-23 Reconsider Comiskey Fence. Assume the average collection period is 90 days. All other factors are the same (including 10 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? Yes or No