Compute the incremental income after taxes

Assignment Help Financial Management

Reference no: EM131608640

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $250,000 if credit is extended to these new customers. Of the new accounts receivable generated, 7 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 70 percent 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? (Input your answer as a percent rounded to 2 decimal places.)

c. If the accounts receivable turnover ratio is 5 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? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Reference no: EM131608640

Questions Cloud

What can lobster do to protect his secret recipe : Protozoa has attempted to steal the recipe for years. What can Lobster do to protect his secret recipe?

Concepts and principles of microeconomics : "Over the past seven weeks, we have explored the foundational concepts and principles of microeconomics

Explain production possibilities curves are bowed outward : In what way does the notion of comparative advantage help to explain that production possibilities curves are bowed outward

Why might an increase in wages reduce the supply of labor : Why might an increase in wages reduce the supply of labor? At what point would the supply of labor (hours worked) you would provide

Compute the incremental income after taxes : Compute the incremental income after taxes. What will Johnson’s incremental return on sales be if these new credit customers are accepted?

Considering more liberal credit policy to increase 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.

What are the portfolio weights of each stock : what are the portfolio weights of each stock?

How much maintenance will be paid every year by endowment : how much maintenance will be paid every year by the endowment?

Adjusted present value method-calculate the apv of project : Using the adjusted present value method, calculate the APV of the project.

User Account

All Pages