We expect that we can receive annual incremental income after taxes of $25,000, including an adjustment for uncollectible accounts. What is the maximum commitment to A/R that we should be willing to assume if our firm's minimum required after-tax return is 8%?
A) $36,000
B) $312,500
C) $168,000
D) $180,000

Question

Quizplus · Accepted Answer

To find the maximum commitment to Accounts Receivable (A/R) that the firm should be willing to assume, we divide the annual incremental income after taxes by the firm's minimum required after-tax return rate. Thus, $25,000 / 0.08 = $312,500.

We Expect That We Can Receive Annual Incremental Income After