Fast Turnstiles Co. is evaluating the extension of 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 also incur $17,700 in additional collection expense. Production and marketing costs represent 76 percent of sales. The firm is in a 30 percent tax bracket and has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return.
a-1. Calculate the incremental income after taxes.
a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.)
b-1. Calculate the incremental income after taxes if 14 percent of the new sales prove to be uncollectible.
b-2. Calculate the return on incremental investment if 14 percent of the new sales prove to be uncollectible. (Input your answer as a percent rounded to 2 decimal places.)
c. Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 11 percent of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.)