Homework Help: fiance

Posted by nikkitt on Friday, August 14, 2009 at 1:56pm.

Collins Office Supplies is considering a more liberal credit policy to increase
sales, but expects that 9 percent of the new accounts will be uncollectible. Collection
costs are 5 percent of new sales, production and selling costs are 78 percent,
and accounts receivable turnover is five times. Assume income taxes of
30 percent and an increase in sales of $80,000. No other asset buildup will be
required to service the new accounts.
a. What is the level of accounts receivable needed to support this sales
expansion?
b. What would be Collins’s incremental aftertax return on investment?
c. Should Collins liberalize credit if a 15 percent aftertax return on investment
is required?
Assume Collins also needs to increase its level of inventory to support
new sales and that inventory turnover is four times.
d. What would be the total incremental investment in accounts receivable and
inventory to support an $80,000 increase in sales?
e. Given the income determined in part b and the investment determined in
part d, should Collins extend more liberal credit terms?

fiance - SraJMcGin, Friday, August 14, 2009 at 7:17pm
Please do NOT just post your Homework questions! This is a HELP Board and not a DO Board. What have you done on this? I see no effort on your part. Try the following as there may be something there to help you:

http://search.aol.com/aol/search?s_it=searchbox.webhome&q=finance+tutorial

When you have done what YOU can do, feel free to spell it out specifically how we may help further.

Sra

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