Deft Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by exist2,000,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 3 percent of sales, and production and selling costs will be 79 percent of sales. The firm is in the 30 percent tax bracket.
a. Compute the incremental income after taxes.
b. What will the incremental return on sales be if these new credit customers are accepted?