Level of accounts receivable-support sales expansion

Reference no: EM13157117

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 five times. Assume income taxes of 30 percent and an increase in sales of $80,000. No other asset buildup will be required to service the new accounts.

a. What is the level of accounts receivable needed to support this sales expansion?

b. What would be Collins's incremental aftertax return on investment?

c. Should Collins liberalize credit if a 15 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 four times.

d. What would be the total incremental investment in accounts receivable and inventory to support an $80,000 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?

Reference no: EM13157117

Questions Cloud

Calculate the net present value of project : It is expected to increase net annual cash flows by $25,000. The company's borrowing rate is 8%. Its cost of capital s 10%. Calculate the net present value of this project to the company?

Why a male subject with a higher intake of carbohydrates : Physiologically, explain why a male subject with a higher intake of carbohydrates in his diet as well as a greater volume and more consistency in exercise within his lifestyle would make him have/show greater RER values and relative fuel consumpti..

Calculate the equilibrium concentrations : Carbon monixide reacts with steam to produce carbon dioxide and hydrogen. At 700 k the equilibrium constant is 5.10. calculate the equilibrium concentrations of all species if 1.000 mol of each component is mixed in a 1.000-L flask.

Chance exactly one car to pass over bridge during given time : The number of cars passing over a certain bridge between 11pm and midnight has a Poisson density with lambda = 4. In what proportion of nights would you expect exactly one car to pass over the bridge during this time?

Level of accounts receivable-support sales expansion : a. What is the level of accounts receivable needed to support this sales expansion? b. What would be Collins's incremental aftertax return on investment?

How much heat is evolved : How much heat is evolved when 239 g of ammonia gas condenses to a liquid at its boiling point?

How technology has changed learning environment : Explain how technology has changed the learning environment. What are some examples of how technology can assist with How might new technologies make it easier to learn? How do they facilitate transfer of training? Provide details.

Calculate the specific heat capacity of the metal : A 150.0-g sample of a metal at 75.0 °C is added to 150.0 g of H2O at 15.0 °C. The temperature of the water rises to 18.9 °C. Calculate the specific heat capacity of the metal, assuming that all the heat lost by the metal is gained by the water.

How much will he owe the bank at the end of three years : A man went to his bank and borrowed $750. He agreed to repay the sum at the end of three years, together with the interest at 12% per year, compounded annually. How much will he owe the bank at the end of three years?

User Account

All Pages