Randy Company is thinking about extending trade credit to new customers. This will increase the annual sales by $400,000 if credit is extended to these customers. Of the new accounts receivable related to these sales, 10% will be uncollectible. Additional collection costs will be 8% of sales. Besides, production and selling costs will be 85% of sales. The company is in a 40% tax bracket.

16. What is the amount of additional collection costs?

a-$32,000

b-$40,000

c-$340,000

d-$400,000

e-None of the above

17. What is the profit on the new sales?

a-$7,200

b-$12,000

c-$30,000

d-$400,000

e-None of the above

18. What is the percentage return on the new sales?

a-1.80%

b-3%

c-7.50%

d-10%

e-None of the above

19. What is the amount of the new investment in accounts receivable if the accounts receivable are turned over 5 times a year?

a-$40,000

b-$68,000

c-$80,000

d-$400,000

e-None of the above

20. What is the return on investment, assuming that the only new investment will be in accounts receivable?

a-9%

b-10%

c-15%

d-30%

e-None of the above