What will the firms incremental return on sales

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Question: Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $270,000 if credit is extended to these new customers. Of the new accounts receivable generated, 9 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales.

a. Compute the incremental income before taxes.

Incremental income before taxes $

b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.)

Incremental return on sales %

c. If the receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be?

Reference no: EM133346088

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