Reference no: EM132494632

Fast Turnstiles Co. 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 additional collection expense. Production and marketing costs represent 71 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 12 percent desired return.

Question a-1. Calculate the incremental income after taxes.

Question a-2. Calculate the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places.)

Question a-3. Should Fast Turnstiles Co. extend credit to these customers?

• Yes
• No

Question b-1. Calculate the incremental income after taxes if 13 percent of the new sales prove to be uncollectible.

Question b-2. Calculate the return on incremental investment if 13 percent of the new sales prove to be uncollectible. (Input your answer as a percent rounded to 2 decimal places.)

Question b-3. Should credit be extended if 13 percent of the new sales prove uncollectible?

• Yes
• No

Question c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible. (Input your answer as a percent rounded to 2 decimal places.)

Question c-2. Should credit be extended if the receivables turnover drops to 1.6 and 10 percent of the accounts are uncollectible?

• Yes
• No