Question Completion Status Ethel, the CFO of Outward Bound Camping Supplies is investigating why sales have recently begun to slow She knows a few new competitors have moved into the industry and has heard they are offering customers more attractive credit terms. Outward Bound has been offering the same credit forms for the last two decades, so perhaps it may be time to reassess things Ethel discusses the proposition with the sales and marketing department, and they believe extending credit could lead to $342.000 in additional credit sales. However, the accounting department pointed out that 13% of these new sales will likely be uncollectable, and it would incur $17, 100 in additional collection expenses, since they would have to hire a part-time employee. No other asset buldup will be required to service the new customers Other financial information: Production and marketing expenses represent 73% of sales Accounts receivable turnover is 5x Management has a 17% desired return on investment TASKS: a) Should the recommend extending the credit torms? d) Would Ethel's recommendation be the same it 16% of the new sales provedbe uncollectable? c) Calculate the return on incremental investment if the receivables tumover drops to 16 and 13% of the accounts are uncollectable TEMPLATE for part A Added sales Accounts un collectible Annual incremental revenue Collection costs Production and selling costs Annual income before Come and it on the Save All Anw GO hp Question Completion Status Ethel, the CFO of Outward Bound Camping Supplies is investigating why sales have recently begun to slow She knows a few new competitors have moved into the industry and has heard they are offering customers more attractive credit terms. Outward Bound has been offering the same credit forms for the last two decades, so perhaps it may be time to reassess things Ethel discusses the proposition with the sales and marketing department, and they believe extending credit could lead to $342.000 in additional credit sales. However, the accounting department pointed out that 13% of these new sales will likely be uncollectable, and it would incur $17, 100 in additional collection expenses, since they would have to hire a part-time employee. No other asset buldup will be required to service the new customers Other financial information: Production and marketing expenses represent 73% of sales Accounts receivable turnover is 5x Management has a 17% desired return on investment TASKS: a) Should the recommend extending the credit torms? d) Would Ethel's recommendation be the same it 16% of the new sales provedbe uncollectable? c) Calculate the return on incremental investment if the receivables tumover drops to 16 and 13% of the accounts are uncollectable TEMPLATE for part A Added sales Accounts un collectible Annual incremental revenue Collection costs Production and selling costs Annual income before Come and it on the Save All Anw GO hp
