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Fast Turnstiles Co.

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21)Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $324,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $17,000 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 8 percent desired return.  a-1.Calculate the incremental income after taxes.    Incremental income after taxes$      a-2.Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.)    Return on incremental investment %    
 a-3.Should Fast Turnstiles Co. extend credit to these customers?    YesNo  b-1.Calculate the incremental income after taxes if 15 percent of the new sales prove to be uncollectible.    Incremental income after taxes$     b-2.Calculate the return on incremental investment if 15 percent of the new sales prove to be uncollectible. (Input your answer as a percent rounded to 2 decimal places.)       Return on incremental investment %      b-3.Should credit be extended if 15 percent of the new sales prove uncollectible?   YesNo  c-1.Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 12 percent of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.)    Return on incremental investment %    
 c-2.Should credit be extended if the receivables turnover drops to 1.6, and 12 percent of the accounts are uncollectible?    NoYes

 
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Global Services

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22)Global Services is considering a promotional campaign that will increase annual credit sales by $460,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:       Accounts receivable5 times  Inventory4 times  Plant and equipment5 times  All $460,000 of the sales will be collectible. However, collection costs will be 4 percent of sales, and production and selling costs will be 70 percent of sales. The cost to carry inventory will be 6 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 35 percent.   
 a.Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together.       Accounts receivable$     Inventory    Plant and equipment     Total Investment$       
 b.Compute the accounts receivable collection costs and production and selling costs and then add the two figures together.      Collection cost$     Production and selling costs     Total collection, production, and selling costs$      
 c.
 Compute the costs of carrying inventory.    Cost of carrying inventory$     d.Compute the depreciation expense on new plant and equipment.     Depreciation expense$       
 e.Compute the total of all costs from parts b through d.    Total costs$     
 f.Compute income after taxes.    Income after taxes$     g-1.What is the aftertax rate of return? (Input your answer as a percent rounded to 2 decimal places.)    Aftertax rate of return%     g-2.If the firm has a required return on investment of 12 percent, should it undertake the promotional campaign described throughout this problem?   YesNo

 
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Dome Metals has credit sales of $396,000

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24)Dome Metals has credit sales of $396,000 yearly with credit terms of net 45 days, which is also the average collection period. Assume the firm adopts new credit terms of 3/18, net 45 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm’s bank loan which costs 10 percent. The new credit terms will increase sales by 15 percent because the discount will make the firm’s price competitive.  a.If Dome earns 20 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.)    Net change in income$     b.Should the firm offer the discount?   NoYes

 
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financial impact

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1) You have been asked to assess the expected financial impact of each of the following proposals

to improve the profitability of credit sales made by your company.  Each proposal is independent of the other.  Answer all questions.  Type your answers in the table and submit this worksheet.  Showing your work may earn you partial credit.  If you wish to show your work, please do so under each question below the table.

Please see attachment

 
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