Question: Collins Office Supplies is considering a more liberal credit policy to raise sales, but expects that 9% of the new accounts will be uncollectible. Collection costs are 5% of new sales, production & selling costs are 78%, & accounts receivable turnover is 5 times. Suppose income taxes of 30% & an increase in sales of $80,000. No other asset buildup will be needed to service the new accounts.
Determine Collins’s incremental after tax return on investment?