Answer:
For computation of total cost is $396400, Computation income after tax is $62,700, The After tax rate of return is 13.06%
Explanation:
Solution
Now,
Computation of total costs
Production and selling Cost=$369,600
Collection cost =$19,200
Inventory carrying cost =$1,600
Depreciation expense=$6,000
Total Cost =$396,400
Computation income after tax
Sales=$480,000
Less : Total Costs=$396,400
Income before tax=$83,600
Less : Tax at 25%= $20,900
Income after tax=$62,700
The After tax rate of return = Income after tax / Sales = $62700 / $480000 = 13.06%
Note: This is the complete question as stated below
Complete question: Global Services is considering a promotional campaign that will increase annual credit sales by $480,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable 6 times Inventory 12 times Plant and equipment 4 times All $480,000 of the sales will be collectible. However, collection costs will be 4 percent of sales, and production and selling costs will be 77 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 25 percent.
(1)Compute the total of all costs
(2)Compute income after taxes.
(3)What is the after tax rate of return
