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Office Supplies is considering a more liberal credit policy…

Customer Question
Collins Office Supplies is considering...
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?
Submitted: 8 years ago.Category: Homework
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Answered in 9 minutes by:
11/25/2009
Tutor: Manal Elkhoshkhany, Tutor replied 8 years ago
Manal Elkhoshkhany
Category: Homework
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Hello

I have posted the solution, but then deleted it as I have noticed that you had not accepted except 2 of the solutions provided to you in the past. I am not sure if you are aware of the fact that you need to click Accept so that experts get paid for their work. Please advise

thank you

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Customer reply replied 8 years ago

Hello,

Thank You for your help but I wanted to try this one myself...

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