Question

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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