Evaluating the extension of credit to new group of customers

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Reference no: EM131990648

Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $234,000 in additional credit sales, 15 percent are likely to be uncollectible. The company will also incur $16,500 in additional collection expense. Production and marketing costs represent 70 percent of sales. The firm is in a 30 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a desired return of 10 percent. Assume the average collection period is 180 days. a. Compute the return on incremental investment. (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.) b. Should credit be extended to the new group of customers? Yes No

Reference no: EM131990648

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