FIN 200 Credit Policy Decisions

Apr 18th, 2015
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FIN 200 Credit Policy Decisionsa. Investment in accounts receivable = $80,000/5=$16,000b. Added sales $ 80,000Accounts uncollectible (9% of new sales) - 7,200Annual incremental revenue $ 72,800Collection costs (5% of new sales) - 4,000Production and selling costs(78% of new sales) - 62,400Annual income before taxes $ 6,400Taxes (30%) - 1,920Incremental income after taxes $ 4,480Return on incremental investment = $4,480/$16,000 = 28%c. Yes! 28% exceeds the required return of 15%.d. Investment in inventory =Total incremental investmentInventory $20,000Accounts receivable 1

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