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Question - Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $450,000 in additional credit sales, 10 percent are likely to be uncollectible. The company will also incur $17,600 in additional collection expense. Production and marketing costs represent 78 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 8 percent desired return. Assume the average collection period is 90 days.
a. Compute the return on incremental investment.
b. Should credit be extended to the new group of customers?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Create a cost-benefit analysis to evaluate the project
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