Slow Roll Drum Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $16,200 in additional collection expense. Production and marketing costs represent 72 percent of sales. The firm is in a 34 percent tax bracket. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired return. Assume the average collection period is 120 days.

a.Compute the return on incremental investment.(Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.)

Return on incremental investment%

b.Should credit be extended to the new group of customers?

• Yes