Looking back at Tables 18.1 and 18.2, evaluate the impact on Bassett’s pretax profits of extending full credit to the customers in Credit Risk Group 5. Assume that Bassett’s pretax required rate of...

Looking back at Tables 18
Looking back at Tables 18.1 and 18.2, evaluate the impact on Bassett’s pretax profi ts of extending full credit to the customers in Credit Risk Group 5. Assume that Bassett’s pretax required rate of return on inventory investments is 20 percent and that an additional inventory investment of $40,000 is required due to the anticipated sales increase from customers in Credit Risk Group 5
(A) Additional sales $100,000
Marginal profitability of additional sales
= Profit contribution ratio
...