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Global Services is considering a promotional campaign that will increase annual credit sales by $$490,000.$ The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

Accounts receivable $2$ times

Inventory $5$ times

Plant and equipment $1$ time

All $$490,000$ of the sales will be collectible. However, collection costs will be $5$ percent of sales, and production and selling costs will be $72$ percent of sales. The cost to carry inventory will be $5$ 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 add the two figures together.

c$.$ Compute the costs of carrying inventory.

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

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

f$.$ Compute income after taxes.

g$-1.$ What is the aftertax rate of return?

Note: Input your answer as a percent rounded to $2$ decimal places.

g$-2.$ If the firm has a required return on investment of $10$ percent, should it undertake the promotional campaign described throughout this problem?

multiple choice

No

Yes

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