Problem $7-26$

Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $$512,000.$ The

company has a $30\%$ cost of goods sold and will require investments in accounts receivable, inventory, and plant and

equipment. The turnover for each is as follows:

All $$512,000$ of the sales will be collectible. However, collection costs will be $2$ percent of sales, and production and selling

costs will be $77$ percent of sales. The cost to carry inventory will be $10$ percent of inventory. Amortization expense on plant

and equipment will be $5$ 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 ratios.

What is the total value of the investment made?

$$377600$

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

$$404480$

c$.$ Compute the costs of carrying inventory.

Cost of carrying inventory $$1920$

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

Amortization expense $$12800$

e$.$ Add together all the costs in parts $b,c,$ and $d.$

Total cost $$419200$

f$.$ Compute income after taxes.

$$64960$

Income after taxesg. If the firm has required return on investment of $17$ percent, should it undertake the promotional campaign described

throughout this problem?

yes

Problem $7-27$

In the previous problem, if inventory had only been $2$ times:

a$.$ What would be the new value for inventory investment?

Inventory investment

$$76800$

b$.1$ What would be the return on investment? You need to recompute the total investment and the total costs of the

campaign to work toward computing income after taxes. $($Round the final answer to $1$ decimal place.$)$

Rate of return

$\%$

b$.2$ Should the campaign be undertaken?

No

I need help with problem $7-27$ part b$\mathrm{.}1$ finding the rate of return