Problem 7-19 (Algo) Credit policy decision with changing variables [LO7-4]

Fast Turnstiles Company is evaluating the extension of credit to a new group of customers. Although these customers will provide $414,000 in additional credit sales, 8 percent are likely to be uncollectible. The company will also incur $17,400 in additional collection expense. Production and marketing costs represent 76 percent of sales. The firm is in a 35 percent tax bracket and has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return.

b-1. Calculate the incremental income after taxes if 11 percent of the new sales prove to be uncollectible.

b-2. Calculate the return on incremental investment if 11 percent of the new sales prove to be uncollectible.

Note: Input your answer as a percent rounded to 2 decimal places

c-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6 and 8 percent of the accounts are uncollectible.

Note: Input your answer as a percent rounded to 2 decimal places.