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Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $156,000 if credit is extended to these new customers. Of the new accounts receivable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 73 percent of sales. The firm is in the 20 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 3 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.)
What should be the optimal debt and equity mix for the 10,000,000?
(1) What is the YTM? What is the YTC? Which is the relevant yield for an investor?
To plant and harvest 20,000 bushels of corn, Farmer incurs fixed and variable costs totaling $33,000 at the time of the harvest. The current spot price of corn is $1.80 per bushel and the six-month interest rate is 4.0%. If Farmer decides to hedge, w..
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