Muncie manufacturing is increasing its collection period

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Reference no: EM131353363

Muncie Manufacturing is increasing its collection period by 25 days in hopes of attracting additional sales. Muncie currently has annual sales of $500,000. It expects revenues to increase $25,000 per year and expenses to increase by $10,000 per year. Muncie believes that an additional $3,000 will go uncollected each year as a result of this change in policy. This $3,000 loss will have to be replaced each year to keep the account receivable balance at the increased 25-day level. The firm expects to collect 90% of the outstanding balance of account receivables at the end of year 4 (after replacement). Using a 4-year life, 40% tax rate, and 10% required return, is the investment attractive?

Reference no: EM131353363

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