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 e

Answer 1

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