Question 1: Proposal #1 would extend trade credit to some customers that previously have been denied

Question 1: Proposal #1 would extend trade credit to some customers that previously have been

denied credit because they were considered poor risks Sales are projected to increase by $150,000

per year if credit is extended to these new customers Of the new accounts receivable generated, 9%

are projected to be uncollectible Additional collection costs are projected to be 3% of incremental

sales (whether they actually end up collected or not), and production and selling costs are projected to

be 77% of sales Your firm expects to pay a total of 40% of its income after expenses in taxes

1) Compute the incremental income after taxes that would result from these projections:

2) Compute the incremental Return on Sales if these new credit customers are accepted:

If the receivable turnover ratio is expected to be 25 to 1 and no other asset buildup is needed

to serve the new customers…

3) Compute the additional investment in Accounts Receivable

4) Compute the incremental Return on New Investment

5) If your company requires a 18% Rate of Return on Investment for all proposals, do the

numbers suggest that trade credit should be extended to these new customers? Explain Question 2: Proposal #2 would establish local collection centers throughout the region to decrease the

time it takes to convert credit payments that are mailed in by check to cash It is estimated that

establishing these collection centers would reduce the average collection time by 3 days

1) If the company currently averages $30,000 in collections per day, how many dollars will this

suggested cash management system frees up?

2) If all freed up dollars would be used to pay down debt that has an interest rate of 6%, how

much money could be saved each year in interest expense?

3) Do the numbers suggest that this new system should be implemented if its total annual

cost is $4800? Explain

You don't know how to answer this question. We can help you find the right answer.

We assure you an A+ quality paper that is free from plagiarism. Order now for an Amazing Discount! Use Discount Code "save15" for a 15% Discount!

Get Started

No need to wonder who can do my homework. You can always reach our team of professionals to do your homework at a low price.