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Henderson Office Supply is considering a more liberal credit policy to increase sales but expects that $7$ percent of the new accounts will be uncollectible. Collection costs are $2$ percent of new sales, production and selling costs are $79$ percent, and accounts receivable turnover is two times. Assume income taxes of $30$ percent and an increase in sales of $$81,000.$ No other asset buildup will be required to service the new accounts.

a$.$ What additional investment in accounts receivable is needed to support this sales expansion?

Incremental accounts receivable $,$$$40,500$

b$.$ What would be Henderson's incremental aftertax return on investment? Note: Input your answer as a percent rounded to $2$ decimal places.

Return on incremental investment $,\%$

c$.$ Should Henderson liberalize credit if a $14$ percent aftertax return on investment is required?

Yes

No

d$.$ Assume that Henderson also needs to increase its level of inventory to support new sales and that inventory turnover is five times. What would be the total incremental investment in accounts receivable and inventory needed to support a $$81,000$ increase in sales?

$$ Total incremental investment

e$.$ Given the income determined in part $p$ and the investment determined in part $a,$ should Henderson extend more liberal credit terms?

Yes

No

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