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File Edit View History Bookmarks Window Help tion.com 0 Question 6 (of 6) Save & et value 10.00 points Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $110,000 if credit is extended to these new customers. Of the new accounts recelvable generated, 5 percent will prove to be uncollectible. Additional collection costs will be 2 percent of sales, and production and selling costs will be 70 percent of sales. The firm is in the 10 percent tax bracket. a. Compute the incremental income after taxes. Incremental income after taxes b. What will Johnson's incremental returm on sales be if these new credit customers are accepted? (nput your answer as a percent rounded to 2 decimal places.) Incremental return on sales c. If the accounts receivable turnover ratio is 3 to 1, and no other asset buildup is needed to serve the new customers, 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.) return on new average investment Hints ReferenceseBook & Resources MacBook Air

Explanation / Answer

a.

Computation:

b.

Incremental return on sales = Incremental income after taxes / Incremental Sales = $ 22,770 / $ 110,000 = 20.70 %

c.

Incremental accounts receivable = $ 110,000 / 3 = $ 36,667.

Incremental return on new average investment = $ 22,770 / $ 36,667 = 0.62099 or 62.10 %.

Incremental income after taxes $ 22,770

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