22)

 Global Services is considering a promotional campaign that will increase annual credit sales by \$460,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

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 ? ? ? ??Accounts receivable 5 ?times ??Inventory 4 ?times ??Plant and equipment 5 ?times

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 All \$460,000 of the sales will be collectible. However, collection costs will be 4 percent of sales, and production and selling costs will be 70 percent of sales. The cost to carry inventory will be 6 percent of inventory. Depreciation expense on plant and equipment will be 5 percent of plant and equipment. The tax rate is 35 percent.

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 a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together.

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 ? ? ??Accounts receivable \$??? ??Inventory ?? ??Plant and equipment ?? ? ??Total Investment \$??? ?

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 b. Compute the accounts receivable collection costs and production and selling costs and then add the two figures together.

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 ? ? ??Collection cost \$??? ??Production and selling costs ?? ? ??Total collection, production, and selling costs \$??? ?

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 c.? Compute the costs of carrying inventory.

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 ??Cost of carrying inventory \$???

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 d. Compute the depreciation expense on new plant and equipment.

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 ??Depreciation expense \$???

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 e. Compute the total of all costs from parts b through d.

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 ??Total costs \$???

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 f. Compute income after taxes.

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 ??Income after taxes \$???

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 g-1. What is the aftertax rate of return??(Input your answer as a percent rounded to 2 decimal places.)

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 ??Aftertax rate of return % ?

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g-2.

If the firm has a required return on investment of 12 percent, should it undertake the promotional campaign described throughout this problem?

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 Yes No

a) Compute the investments in accounts receivable, inventory, and plant and equipment
based on the turnover ratios. Add the three together.
Accounts receivable

1/5 * \$460,000 = \$92,000

Inventory…