Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $130,000 if credit is extended to these new customers. Of the new accounts receivable generated, 7 percent will prove to be uncollectible. Additional collection costs will be 4 percent of sales, and production and selling costs will be 72 percent of sales. The firm is in the 25 percent tax bracket.

A)Compute the incremental income after taxes.
B What will Johnson’s incremental return on sales be if these new credit customers are accepted?
C)If the accounts receivable turnover ratio is 5 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson’s incremental return on new average investment be?