Van Bosch Inc.is considering selling to a group of new customers that will bring in sales of $20,000 with a return on sales of 7%.The only new investment will be in accounts receivable.Waldron has a turnover ratio of 4 to 1 between sales and accounts receivable.What is the return on investment?
A) 28%
B) 7%
C) 1.75%
D) cannot calculate with the information provided

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of new accounts receivable that will be generated by the $20,000 in sales:

New Accounts Receivable = $20,000 / 4 = $5,000

Next, we can calculate the profit that will be earned on the $20,000 in sales:

Profit = $20,000 * 7% = $1,400

Finally, we can calculate the return on investment:

ROI = ($1,400 / $5,000) * 100% = 28%

Therefore, the answer is Choice A.