Hoping to boost its revenues, a company is considering a credit policy extension, with the following...

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Hoping to boost its revenues, a company is considering a credit policy extension, with the following summary taken into account: Add. ROI Additional sales Uncollectible accounts Collection costs Production and selling costs Average collection period Add. Acc. Rec. = Required return on investment (ROI) Income tax bracket Required: o. Based on the above information, should the company extend credit? Indicate your calculations. (4 marks) Add. Inventory b. Given the income level established in part a, would it be acceptable for the company to extend credit if an increase in inventory is considered? Assume an inventory turnover of five times. (3 marks) Add. Acc. Rec. Average Collection Period x Average Daily Sales $78,000 10% of new sales 4% of new sales 76% of new sales 90 days (based on 360 days per year) 18% 30% Add. Sales Acc. Rec. Turnover Add. Sales Inventory Turnover Add. EAT Add. Investment Hoping to boost its revenues, a company is considering a credit policy extension, with the following summary taken into account: Add. ROI Additional sales Uncollectible accounts Collection costs Production and selling costs Average collection period Add. Acc. Rec. = Required return on investment (ROI) Income tax bracket Required: o. Based on the above information, should the company extend credit? Indicate your calculations. (4 marks) Add. Inventory b. Given the income level established in part a, would it be acceptable for the company to extend credit if an increase in inventory is considered? Assume an inventory turnover of five times. (3 marks) Add. Acc. Rec. Average Collection Period x Average Daily Sales $78,000 10% of new sales 4% of new sales 76% of new sales 90 days (based on 360 days per year) 18% 30% Add. Sales Acc. Rec. Turnover Add. Sales Inventory Turnover Add. EAT Add. Investment

Answer rating: 100% (QA)

a Based on the above information the company should extend credit The additional sales resulting fro... View the full answer