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26 May, 03:56

Waldron inc. is considering selling to a group of new customers that will bring in credit sales of $24,000 with a return on sales of 5%. the only new investment will be in accounts receivable. waldron has a turnover ratio of 6 to 1 between sales and accounts receivable. what is waldron inc.'s expected return on investment?

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  1. 26 May, 03:57
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    30%

    Explanation:

    The computation of return on investment is shown below:-

    Return on Sales = Credit sales * Return on sales

    = $24,000 * 5%

    = $1,200

    Investment in Accounts Receivable

    = $24,000 * 1 : 6

    = $4,000

    Return on Investment = Return on Sales : Investment in Accounts Receivable * 100

    = $1,200 : $4,000 * 100

    = 30%

    Therefore for computing the return on investment we simply divide the investment in account receivable by return on sales.
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