Global Services is considering a promotional campaign

that will increase

Global Services is considering a promotional campaign that will increase annual credit sales by
$450,000. The company will require investments in accounts receivable, inventory, and plant
and equipment. The turnover for each is as follows:Accounts receivable ............ 2xInventory
................ 6xPlant and equipment ........... 1xAll $450,000 of the sales will be collectible.
However, collection costs will be 6 percent of sales, and production and selling costs will be 71
percent of sales. The cost to carry inventory will be 4 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 depreciation expense on new plant and
equipment.e. Add together all the costs in parts b, c, and d.f. Subtract the answer from part e
from the sales figure of $450,000 to arrive at income before taxes. Subtract taxes at a rate of 30
percent to arrive at income after taxes.g. Divide the aftertax return figure in part f by the total
investment figure in part a. If the firm has a required return on investment of 8 percent, should it
undertake the promotional campaign described throughout this problem.View Solution: Global
Services is considering a promotional campaign that will increase
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