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

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