Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers...
Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will incur $16,200 in additional collection expenses. Production and marketing expenses represent 72 percent of sales. The company has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 20 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
-
No
b-1. Calculate the incremental income before taxes from the new group of customers if 15 percent of the sales prove uncollectable.
Incremental income before taxes $
b-2. Calculate the return on incremental investment if 15 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 15 percent of the new sales prove uncollectible?
-
No
-
Yes
c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 12 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 12 percent of the accounts are uncollectible (as in part a)?
-
Yes
-
No
Problem 7-23
Reconsider Comiskey Fence. Assume the average collection period is 120 days. All other factors are the same (including 12 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
-
No
Homework Answers
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Comiskey Fence Co. is evaluating extending credit to a new group
of customers. Although these customers...
Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers...
Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $468,000 in additional credit sales, 11 percent are likely to be uncollectible. The company will incur $17,700 in additional collection expenses Production and marketing expenses represent 76 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 17 percent desired return on investment 6-1....
Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although...
Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $162,000 in additional credit sales, 11 percent are likely to be uncollectible. The company will incur $16,100 in additional collection expenses. Production and marketing expenses represent 70 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 17 percent desired return on...
Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although...
Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $216,000 In additional credit sales, 14 percent are likely to be uncollectible. The company will incur $16,400 in additional collection expenses. Production and marketing expenses represent 72 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...
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although...
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $108,000 in additional credit sales, 8 percent are likely to be uncollectible. The company will also incur $15,800 in additional collection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 30 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers....
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although...
Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $234,000 in additional credit sales, 15 percent are likely to be uncollectible. The company will also incur $16,500 in additional collection expense. Production and marketing costs represent 70 percent of sales. The firm is in a 30 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers....
21. Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will...
21. Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $342,000 in additional credit sales, 13 percent are likely to be uncollectible. The company will also incur $17,100 in additional collection expense. Production and marketing costs represent 73 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of five times. No other asset buildup will be required to service the new...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $146,000 if credit is extended to these new customers. Of the new accounts receivable generated, 8 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 72 percent of sales. The firm is in the 10 percent tax bracket. a. Compute the incremental income after taxes. Incremental income after taxes...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $150,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket. a. Compute the incremental income after taxes. Incremental income after taxes...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $150,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket. a. Compute the incremental income after taxes. Incremental income...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $250,000 if credit is extended to these new customers. Of the new accounts receivable generated, 7 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs ill be 70 percent of sales. The firm is in the 30 percent tax bracket a. Compute the incremental income after taxes. Incremental income after taxes...
Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $468,000 in additional credit sales, 11 percent are likely to be uncollectible. The company will incur $17,700 in additional collection expenses Production and marketing expenses represent 76 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 17 percent desired return on investment 6-1....
Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $162,000 in additional credit sales, 11 percent are likely to be uncollectible. The company will incur $16,100 in additional collection expenses. Production and marketing expenses represent 70 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 17 percent desired return on...
Problem 7-22 Comiskey Fence Co. is evaluating extending credit to a new group of customers. Although these customers will provide $216,000 In additional credit sales, 14 percent are likely to be uncollectible. The company will incur $16,400 in additional collection expenses. Production and marketing expenses represent 72 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...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $146,000 if credit is extended to these new customers. Of the new accounts receivable generated, 8 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 72 percent of sales. The firm is in the 10 percent tax bracket. a. Compute the incremental income after taxes. Incremental income after taxes...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $150,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket. a. Compute the incremental income after taxes. Incremental income after taxes...
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $250,000 if credit is extended to these new customers. Of the new accounts receivable generated, 7 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs ill be 70 percent of sales. The firm is in the 30 percent tax bracket a. Compute the incremental income after taxes. Incremental income after taxes...
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