Mountain Health System, Inc. is a well-known and reputable supplier of integrated heart monitoring devices. The firm is currently debating whether to expand its sales overseas. While the firm expects an extra $3 million in sales if it enters foreign markets, it also knows that 15% of its sales will ultimately be uncollectible. In addition, selling costs will be 3% on all new sales and the firm's production costs are 80% of sales. Mountain Health System’s tax rate is 30%. (PLEASE SHOW YOUR WORK).
a) Calculate Mountain Health System’s additional net income from the new sales.
b) If the average investment in accounts receivable is $750,000 and management requires that any new project earn a minimum of 10% return on investment. Should the firm enter the foreign markets?