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.
Calculate the incremental income before taxes from this new group of customers.
a-2. Calculate the return on incremental investment. (Round the final answer to 2 decimal place.)
a-3. Should Cominsky extend credit to these customers?
b-1. Calculate the incremental income before taxes from the new group of customers if 14 percent of the sales prove uncollectable.
b-2. Calculate the return on incremental investment if 14 percent of the new sales prove uncollectible. (Round the final answer to 2 decimal place.)
b-3. Should credit be extended if 14 percent of the new sales prove uncollectible?
c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 11 percent of the accounts are uncollectible (as in part a)? (Round the final answer to 2 decimal places.)
c-2. Should credit be extended if the receivables turnover drops to 1.6 and 11 percent of the accounts are uncollectible (as in part a)?