Question
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $432,000 in additional credit
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $432,000 in additional credit sales, 9 percent are likely to be uncollectible. The company will also incur $17,500 in additional collection expense. Production and marketing costs represent 77 percent of sales. The firm is in a 35 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a desired return of 12 percent. Assume the average collection period is 180 days. Compute the return on incremental investment. (___%) Should credit be extended to the new group of customers? (Yes or No)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started