Question: Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $180,000 if credit is extended to these

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $180,000 if credit is extended to these new customers. Of the new accounts receivable generated, 6 percent will prove to be uncollectible. Additional collection costs will be 6 percent of sales, and production and selling costs will be 75 percent of sales. The firm is in the 25 percent tax bracket. A) Compute the incremental income after taxes. B) What will Johnsons incremental return on sales be if these new credit customers are accepted? C) If the accounts receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Johnsons incremental return on new average investment be?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!