Global Services is considering a promotional campaign that will increase annual credit sales by $$520,000.$ The company will require

investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

Inventory receivable $4$ times

Inventory $8$ times

Plant and equipment $,4$ times

All $$520,000$ of the sales will be collectible. However, collection costs will be $3$ percent of sales, and production and selling costs will

be $72$ percent of sales. The cost to carry inventory will be $8$ percent of inventory. Depreciation expense on plant and equipment will be

$5$ percent of plant and equipment. The tax rate is $30$ percent.

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

together.

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

c$.$ Compute the costs of carrying inventory.

d$.$ Compute the depreclation expense on new plant and equipment.

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

Total costs

f$.$ Compute Income after taxes.

Income after taxes

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

Aftertax rate of return

g$-2.$ If the firm has a required return on Investment of $12$ percent, should It undertake the promotional campalgn described throughout

this problem?

Yes

No