18. Curtis Toy Manufacturing Company is evaluating the extension of credit to a

18. Curtis Toy Manufacturing Company is evaluating the extension of credit to a

admin / July 3, 2018

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Curtis Toy Manufacturing Company is evaluating the extension of
credit to a new group of customers. Although these customers will
provide $240000 in additional credit sales 12 percent are likely to
be uncollectible. The company will also incur $21000 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?

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