Problem:
Comapny considering a more liberal credit policy to increase sales but expects that 8% of the new account will be uncollected. Collections cost are 6% of new sales production and selling cost are 79% accounts reciev. Turnover is four times Income tax of 35% increase in sales of 70,000 no other assest buildup required.
Required:
Question 1: What are the level of accounts recievable needed to support the this sales expansion
Question 2: What would be the incremental aftertax return on income?
Question 3: Assume he also needs to increase level of inventory to support the 70,000 in sales
Note: Show supporting computations in good form.