Global Services is considering a promotional campaign that willincrease annual credit sales by $650,000. The company will requireinvestments in accounts receivable, inventory, and plant andequipment. The turnover for each is as follows:  
  

Accounts receivable	2	times
Inventory	4	times
Plant and equipment	2	times

     
All $650,000 of the sales will be collectible. However, collectioncosts will be 6 percent of sales, and production and selling costswill be 76 percent of sales. The cost to carry inventory will be 4percent of inventory. Depreciation expense on plant and equipmentwill be 10 percent of plant and equipment. The tax rate is 35percent.

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 collectioncosts and production and selling costs and then add the two figurestogether.
  

   

c. Compute the costs of carrying inventory.
  

   

d. Compute the depreciation expense on new plantand equipment.
  

     

e. Compute the total of all costs from parts bthrough d.
  

   

f. Compute income after taxes.
  

   

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

    

g-2. If the firm has a required return oninvestment of 12 percent, should it undertake the promotionalcampaign described throughout this problem?
  

	No
	Yes

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