Describe Accounts Receivables

Collins Office Supplies is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 78 percent, and accounts receivable turnover is five times. Assume income taxes of 30 percent and an increase in sales of $80,000. No other asset buildup will be required to service the new accounts.

Should Collins liberalize credit if a 15 percent after tax return on investment is required?

Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is four times