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Global Services is considering a promotional campaign that will increase annual credit sales by $ 4 5 0 , 0 0 0 . The company
Global Services is considering a promotional campaign that will increase annual credit sales by $ The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:
tableAccounts receivable,timesInventorytimesPlant and equipment,time
All $ of the sales will be collectible. However, collection costs will be percent of sales, and production and selling costs will be percent of sales. The cost to carry inventory will be percent of inventory. Depreciation expense on plant and equipment will be percent of plant and equipment. The tax rate is percent.
a Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together.
tableAccounts receivable,InventoryPlant and equipment,Total Investment,
b Compute the accounts receivable collection costs and production and selling costs and add the two figures together.
Collection cost
Production and selling costs
Total collection, production, and selling costs
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