Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset buildup will be required to service the new accounts. Assume that Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is two times. d. What would be the total incremental investment in accounts receivable and inventory needed to support a $65,000 increase in sales?

Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset buildup will be required to service the new accounts. Assume that Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is two times. d. What would be the total incremental investment in accounts receivable and inventory needed to support a $65,000 increase in sales?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 5P

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Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset buildup will be required to service the new accounts. What would be Henderson’s incremental aftertax return on investment? (Input your answer as a percent rounded to 2 decimal places.)
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