The new credit manager of kays department store plans to


The new credit manager of Kay's department store plans to liberalize the firm's credit policy. The firm currently generates credit sales of $575,000 annually. The more lenient credit policy is expected to produce credit sales of $750,000. The bad debt losses on additional sales are projected to be 5% despite an additional $15,000 collection expenditure. The new manager anticipates production and selling costs other than additional bad debt and collection expense will remain at the 85% level. The firm is in the 34% tax bracket.
A. If the firm maintains its receivables turnover of 10times, how much will the receivables balance increase?
B. What would be Kay's incremental after-tax return on investment?
C. Assuming additional inventory of $35,000 is required to support the additional sales compute the after-tax return on investment? 

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