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Credit policy decision with changing variables L07-4 Slow Roll Drum Co is evaluating the extension of credit to a new group of customers. Although these customers will provide $416.000 in additional credit sales, 8 percent are likely to be uncollectible. The company will also incur $17,400 in additional collection expense Production and marketing costs represent 76 percent of sales. The firm is in a 35 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 60 days, a. Compute the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year Return on incremental investment b Should credit be extended to the new group of customers No Yes

Credit policy decision with changing variables (L07-4) Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $416.000 in additional credit sales, 8 percent are likely to be uncollectible. The company will also incur $17,400 in additional collection expense Production and marketing costs represent 76 percent of sales. The firm is in a 35 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 60 days, a. Compute the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.) Return on incremental investment b. Should credit be extended to the new group of customers? No Yes

Mar 09 2021 View more View Less

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