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Curtis Toy Manufacturing Company is evaluating the extension of credit to a new group of customers

Curtis Toy Manufacturing Company is evaluating the extension of credit to a new group of customers
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18.   Curtis Toy Manufacturing Company is evaluating the extension of credit   to a new group of customers. Although these customers will provide   $240,000 in additional credit sales, 12 percent are likely to be   uncollectible. The company will also incur $21,000 in additional   collection expense. Production and marketing costs represent 72 percent   of sales. The company is in a 30 percent tax bracket and has a   receivables turnover of six times. No other asset buildup will be required to service the new customers. The firm has a 10 percent desired   return on  investment.

a. Should Curtis extend credit to these customers?

b. Should credit be extended if 14 percent of the new sales prove uncollectible?

c.   Should credit be extended if the receivables turnover drops to 1.5 and 12 percent of the accounts are uncollectible (as was the case in part a)?

 

19. Reconsider problem 18. Assume the average collection period is 120 days. All other factors are the same (including 12 percent uncollectible). Should credit be extended?

 

FILE: MS WORD

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