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*MUST show all work* Collins Office Supplies is c...

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*MUST show all work* Collins Office Supplies is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 78 percent, and accounts receivable turnover is 12 times. Assume income taxes of 39 percent and an increase in sales of $180,000 No other asset buildup will be required to service the new accounts. a What is the level of accounts receivable to support this sales expansion? b What would be Collins?s incremental aftertax return on investment? c Should Collins liberalize credit if a 18 percent aftertax return on investment is required? Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is 4 times. d What would be the total incremental investment in accounts receivable and inventory to support a $180,000 increase in sales? e Given the income determined in part b and the investment determined in part d, should Collins extend more liberal credit terms? a. Answer b. Answer c. Answer d. Answer e. Answer

 

Paper#13692 | Written in 18-Jul-2015

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