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Quenta Office Supplies is considering a more liberal credit policy to increase sales, but it expects that 8 percent of the new accounts will

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Quenta Office Supplies is considering a more liberal credit policy to increase sales, but it expects that 8 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, and production costs are 78 percent of sales. The accounts receivable turnover is 5 times. Assume an increase in sales of $60,000. a) What is the level of investment in accounts receivable to support this sales expansion? b) What would be Quenta's incremental before-tax return on investment? c) Should Quenta liberalize credit if a 25 percent before-tax return is required (opportunity cost of capital)?

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