Global Services is considering a promotional campaign that will increase annual credit sales by $580,000....
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Accounting
Global Services is considering a promotional campaign that will increase annual credit sales by $580,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable 4 times Inventory 4 times Plant and equipment 2 times All $580,000 of the sales will be collectible. However, collection costs will be 4 percent of sales and production and selling costs will be 72 percent of sales. the cost to carry inventory will be 5 percent of inventory. Depreciation expense on plant and equipment will be 15 percent of plant and equipment. the tax rate is 30 percent.
a. compute the investment in a/r, inventory, and plant & equipment based on the turnover ratios. add the three together
b. compute the a/r collection cost and production and selling costs and add the two figures together
c. compute the costs of carry inventory
d. compute the depreciation expense on new plant & equipment
e. compute the total of all costs from part b through d
f. compute income after taxes
g-1 what is the after tax rate if return
g-2 if the firm has a required return on investment of 10 percent, should it undertake the promotional campaign described throughout this problem
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