ABC Corp is considering an easing of credit policy toexpand sales The...

ABC Corp is considering an â€˜easingâ€™ of credit policy to expand sales. The following data has...

90.2K

Verified Solution

Question

Finance

ABC Corp is considering an â€˜easingâ€™ of credit policy toexpand sales. The following data has been assembled:
Additional Sales: $1,000,000
Production/marketing Costs= 60% of Sales.
Collection Costs = 12% of Sales.
Bad Debts= 16% of sales.
Tax Rate = 10%
Accts Receivable turnover = 5
Inventory Turnover= 4
Cost of Capital= 15%
Q1:Project Net Income (after taxes) on additionalsales.
Q2:What is the additional required investment inInventory?
Q3 :What is the additional required investment inA/R?
Q4 :What is the return on the total additionalinvestment?
Q5 :Should the company ease itâ€™s credit policy?Justifyresponse.

Answer & Explanation Solved by verified expert

4.4 Ratings (753 Votes)

1 Additional Sales 1000000 Productionmarketing Costs 600000 60Sales Collection Costs 120000 12Sales Bad Debt Write Off 160000 16Sales Profit Before Tax 120000 Sales See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member