Subject:- finance Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide$144,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,000 in additionalcollection expense. Production and marketing costs represent 71 percent of sales. The firm is in a 35 percent tax bracket and has areceivables turnover of four times. No other asset buildup will be required to service the new customers. The firm has a 12 percentdesired return.b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible.Incremental income after taxesb-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible.Note: Input your answer as a percent rounded to 2 decimal places.Return on incremental investmentb-3. Should credit be extended if 13 percent of the new sales prove uncollectible?YesO Noc-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts areuncollectible.Note: Input your answer as a percent rounded to 2 decimal places.Return on incremental investment

When referring to investments that raise the overall outstanding aggregate invested amount under…

Answered: Fast Turnstiles Company is evaluating…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 10P

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Toy Kingdom is evaluating the extension of credit to a new group of customers. Although these customers will provide P240,000 in additional credit sales, 12% are likely to be uncollectible. The company will also incur P21,000 in additional collection expense. Production and marketing costs represent 72% of sales. The firm is in a 30% tax bracket and has a receivables turnover of six times. No other asset buildup will be required to service the new customers. The firm has a 10% desired return on investment. Should it extend credit to these customers? Should credit be extended if the receivables turnover drops to 1.5 and all other factors are the same?
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $16,200 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 34 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 120 days. a. Compute the return on incremental investment b. Should credit be extended? 1 i B IF T 111
Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $288,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $16,800 in additional collection expense. Production and marketing costs represent 70 percent of sales. The firm is in a 25 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 72 days. a. Compute the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.) Return on incremental investment % b. Should credit be extended to the new group of customers? No Yes
Toy Kingdom is evaluating the extention of credit to a new group of customers. Although these customers will provide P240,000 in additional credit sales, 12% are likely to be uncollectible. The company will also incur P21,000 in additional collection expense. Production and marketing costs represent 72% of sales. The firm is in a 30% tax bracket and has a receivables turnover of six times. No other asset buildup will be required to service the new customers. The firm has a 10% desired return on investment a) Should it extend credit to these customers? b) Should credit be extended if the receivables turnover drops to 1.5 and all other factors are the same? Kindly help me to solve this, thanks!
Build Corporation wants to purchase a new machine for $295,000. Management predicts that the machine can produce sales of $187,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $69,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 13% on all investments. What is the net after-tax cash inflow in Year 1 from the investment?
Build Corporation wants to purchase a new machine for $295,000. Management predicts that the machine can produce sales of $187,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $69,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the net present value (NPV) of the investment, rounded to the nearest whole dollar? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end
Pique Corporation wants to purchase a new machine for $290,000. Management predicts that the machine can produce sales of $198,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $88,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the net present value (NPV) of the investment, rounded to the nearest whole dollar? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end.
Build Corporation wants to purchase a new machine for $287,000. Management predicts that the machine can produce sales of $216,000 each year for the next 8 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $73,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.)
Build Corporation wants to purchase a new machine for $318,000. Management predicts that the machine can produce sales of $206,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the present value payback period, rounded to one-tenth of a year? (Note: PV factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791. Assume that annual after-tax cash inflows occur at year-end.)
Build Corporation wants to purchase a new machine for $306,000. Management predicts that the machine can produce sales of $203,000 each year for the next 8 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $76,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 11% on all investments. What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.) Multiple Choice 2.4 years. 2.6 years. 3.0 years. 3.5 years. 4.1 years.
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $32,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $61,500 per year. The firm’s cost of capital (discount rate) is 11%. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 × 25%). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year.
Blossom Inc. currently grants no credit, but it is considering offering new credit terms of net 30. As a result, the price of its product will increase by $2 per unit. The original price per unit is $40. Expected sales will increase by 1,000 units per year. The original sales are 11.000 units. Variable costs will remain at $25 per unit and bad debt losses will amount to $2.000 per year. The firm will finance the additional investment in receivables by using a line of credit, which charges 5-percent interest. The firm's tax rate is 20 percent. Calculate the NPV. (Assume Blossom benefits from the credit policy change indefinitely.) (Round answer to 2 decimal places, e.g. 15.75. Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg.(45)) NPV $ 513836 Should the firm begin extending credit under the terms described? Yes

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