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for Business Expert-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 of30 percent and an increase in sales of $80,000. No other asset buildup will berequired to service the new accounts.
aWhat is the level of accounts receivable needed to support this salesexpansion?bWhat would be Collins’s incremental aftertax return on investment?c. Should Collins liberalize credit if a 15 percent aftertax return on investmentis required?Assume Collins also needs to increase its level of inventory to supportnew sales and that inventory turnover is four times.d.What would be the total incremental investment in accounts receivableandinventory to support an $80,000 increase in sales?e.given B&Dshould Collins extend more liberal credit terms?

Submitted: 362 days and 8 hours ago.
Category: Homework
Value: $9
Status: AWAITING CUSTOMER ACTION
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Level: first year; Subject: financial

Already Tried:
reading the material and not understanding it.

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Expert: BusinessTutor
Pos. Feedback: 99.8 %
Accepts: 2544
Answered: 3/23/2009

Tutor

MBA - Finance. More than 5000 online tutoring sessions.

Posted by BusinessTutor 360 days and 14 hours ago.

Info Request

Thanks a million for the Accept and the bonus, but please note that my ID is BusinessTutor not Business Expert, just thought I would draw your attention to that so that for future posts you type the name correctly otherwise someone else might address your posts

 

Regards,

 

348 days and 23 hours ago.

Reply

 

I will definitely get the name right from here on out! Thanks for your help!

Marianne

Posted by BusinessTutor 348 days and 23 hours ago.

Info Request

:) You are more than welcome Marianne Smile

348 days and 23 hours ago.

Reply

 

This is an old question that I just replied back to you about. I need help on the current question that I sent today.

 

Regards,

Marianne

Posted by BusinessTutor 348 days and 23 hours ago.

Info Request

Yes :) I already answered it :)

 

Best wishes

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