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Fin200 Chapter 7 Week 6 Checkpoint Cooper Office Supplies (Credit Policy Decision)-ANSWER KEY

Fin200 Chapter 7 Week 6 Checkpoint Cooper Office Supplies (Credit Policy Decision)-ANSWER KEY
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Solution Guide / Answer Key:

 

Week 6 - Credit Policy Decisions           Chapter 7
               
Cooper Office Supplies is considering a more liberal credit policy in order to      
increase sales.  The following data is available for the company:          
               
Uncollectable new accounts 8%            
Collection costs (% of new sales) 6%            
Production and selling costs 77%            
Accounts receivable turnover 5            
Income taxes 34%            
Expected increase in sales $78,000 due to the liberal credit policy    
               
a. What is the level of accounts receivable needed to support this sales expansion?
               
b. What would be Cooper's incremental income after tax on investment?
               
c.  Should Cooper liberalize credit if a 15% after tax return on investment is required?
Determine and show answer in percentage amounts.          
               
d.  Assume Cooper also needs to increase its level of inventory to support new sales
and that inventory turnover is 4 times.              
What would be the total incremental investment in accounts receivable      
and inventory to support the expected increase in sales?          
               
e. Given the income determined in part B and the investment determined in
part D, should Cooper extend more liberal credit terms?  Determine and show    
answer in percentage amounts.              

FILE: MS EXCEL

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