Mountain Home Systems, Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications
Question:
Mountain Home Systems, Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The firm is currently debating whether to expand its sales to car-telephone manufacturers. While the firm expects an extra $2 million in sales if it enters this market, it also knows that 15% of its sales will ultimately be uncollectible. In addition, collection costs will be 2% on all new sales and the firm's production and selling costs are 80% of sales. Mountain Home's tax rate is 30%.
a) Calculate Mountain Home's additional net income.
b) If Mountain Home can turn its receivables over 4 times per year, what will its additional investment in accounts receivable be and what will the firm earn as an after-tax return on that investment?
c) Mountain Home management requires that any new project earn a minimum of 15%
return on investment. Should the firm enter the car-telephone manufacturer market?
Accounts ReceivableAccounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
a Additional sales 2000000 Less Uncollectible 15 of 2000000 300000 Cost of collection ...View the full answer
Quantitative Analysis for Management
ISBN: 978-0132149112
11th Edition
Authors: Barry render, Ralph m. stair, Michael e. Hanna
