Answered

Westonci.ca is the premier destination for reliable answers to your questions, brought to you by a community of experts. Explore thousands of questions and answers from knowledgeable experts in various fields on our Q&A platform. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $125,000 if credit were extended to these new customers. Of the new accounts receivable generated, 8% will prove to be uncollectible. Additional collection costs will be 3% of sales, and production and selling costs will be 80% of sales. The firm is in the 30 percent tax bracket.
A. Compute the incremental income after taxes.
B. What will Johnson’s incremental return on sales be if these new credit customers are accepted?
C. If the accounts receivable turnover ratio is 6 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson’s incremental return on new average investment be?

Sagot :

jepessoa

Answer:

net increase in sales = $125,000 x (1 - 8% - 3%) = $111,250

net increase in costs = $125,000 x 80% = $100,000

average investment in assets = $125,000 / 6 = $20,833

A. Compute the incremental income after taxes.

  • incremental income = $111,250 - $100,000 = $11,250

B. What will Johnson’s incremental return on sales be if these new credit customers are accepted?

  • return on sales = $11,250 / $125,000 = 9%

C. If the accounts receivable turnover ratio is 6 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson’s incremental return on new average investment be?

  • = $11,250 / $20,833 = 54%

We hope this information was helpful. Feel free to return anytime for more answers to your questions and concerns. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.