Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 5...

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Henderson OfficeSupply is considering a more liberal credit policy to increasesales, but expects that 5 percent of the new accounts will beuncollectible. Collection costs are 4 percent of new sales,production and selling costs are 79 percent, and the accountsreceivable turnover is four times. Assume income taxes of 35percent and an increase in sales of $73,000. No other asset buildupwill be required to service the new accounts.

a. What additional investment in accountsreceivable is needed to support this sales expansion?



b. What would be Henderson’s incremental aftertaxreturn on investment? (Input your answer as a percentrounded to 2 decimal places.)



c. Should Henderson liberalize credit if a 19percent aftertax return on investment is required?

Yes
No


Assume that Henderson also needs to increase its level of inventoryto support new sales and that the inventory turnover is fourtimes.

d. What would be the total incremental investmentin accounts receivable and inventory needed to support a $73,000increase in sales?

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Henderson OfficeSupply is considering a more liberal credit policy to increasesales, but expects that 5 percent of the new accounts will beuncollectible. Collection costs are 4 percent of new sales,production and selling costs are 79 percent, and the accountsreceivable turnover is four times. Assume income taxes of 35percent and an increase in sales of $73,000. No other asset buildupwill be required to service the new accounts. a. What additional investment in accountsreceivable is needed to support this sales expansion? b. What would be Henderson’s incremental aftertaxreturn on investment? (Input your answer as a percentrounded to 2 decimal places.) c. Should Henderson liberalize credit if a 19percent aftertax return on investment is required? YesNo Assume that Henderson also needs to increase its level of inventoryto support new sales and that the inventory turnover is fourtimes. d. What would be the total incremental investmentin accounts receivable and inventory needed to support a $73,000increase in sales?