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Problems 7-25 and 7-26 Inventory at Cost Basis Problem 7-25 Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by 5684,000. The company has a 60% cost of goods sold and will require investments in accounts receivable, Inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 5x 2x All $684,000 of the sales will be collectible. However, collection costs will be 4 percent of sales and production and selling costs will be 80 percent of sales. The cost to carry Inventory will be 10 percent of InventoryAmortization expense on plant and equipment will be 4 percent of plant and equipment. The tax rate is 30 percent. Inventory is calculated using cost of goods sold and not sales. a. Compute the investments in accounts receivable, Inventory, and plant and equipment based on the turnover ratlos What is the total value of the investment made? Accounts receivable Inventory Plant and equipient Tutal Investment b. Compute the accounts recevable collection costs and production and selling costs and add the two figures together BERCE Produtseling costs Total Vie accounts treabile c. Compute the costs of carrying Inventory. Cost of carrying inventory d. Compute the amortization expense on new plant and equipment Amortization expense e. Add together all the costs in parts b. c. and d. Total cost 1. Compute Income after taxes. Income after taxes g. If the firm has required return on investment of 10 percent should it undertake the promotional campaign described throughout this problem? = = NO

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