$16$

$8$ points

$01$:$00$:$05$

Spector & Co$.$ is considering a more liberal credit policy to increase sales, but it expects that $9$ percent of the new accounts will be uncollectible. Collection costs are $2$ percent of new sales, production costs are $80$ percent of sales, and accounts receivable turnover is two times. Assume an increase in sales of $$71,000.$ No other asset buildup will be required to service the new accounts.

a$.$ What is the level of investment in accounts receivable to support this sales expansion?

Investment in accounts receivable

$$$

b$.$ What would be Spector & Co$.\text{'}$s incremental before$-$tax return on investment?

Return on incremental investment $\%$

c$.$ Should Spector & Co$.$ liberalize credit if a $15$ percent before$-$tax return is required $($opportunity cost of capital$)?$

Yes

No

Assume Spector & Co$.$ also needs to increase its level of inventory to support new sales and that inventory turnover is five times on Cost of Goods Sold.

d$.$ What would be the total incremental investment in accounts receivable and inventory to support a $$71,000$ increase in sales?

Total incremental investment

$$$

e$.$ Given the income determined in part $b$ and the investment determined in part $d,$ should Spector & Co$.$ extend more liberal credit terms?

Yes

No