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Lyman Company has the opportunity to increase annual credit sales $100,000 by selling to a new, riskier group of customers. The expenses of collecting credit sales are expected to be 15 percent of credit sales. The company's manufacturing and selling expenses are projected at 70% of sales, and its effective tax rate is 40%. If Lyman accepts this opportunity, its after-tax profits would increase by an estimated:_____.
a. $10,200.
b. $10,000.
c. $9,000.
d. $14,400.

Sagot :

Cricetus

Answer:

Option c ($9,000) is the correct answer.

Explanation:

The given values are:

Annual increase in sales,

= $100,000

Now,

The collection expenses will be:

= [tex]100,000\times 15 \ percent[/tex]

= [tex]15,000[/tex]

Selling as well as manufacturing expenses will be:

= [tex]100,000\times 70 \ percent[/tex]

= [tex]70,000[/tex]

Tax expense will be:

= [tex]15,000\times 40 \ percent[/tex]

= [tex]6,000[/tex]

After-tax profits increase will be:

= [tex]15,000-6,000[/tex]

= [tex]9,000[/tex] ($)

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