Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 2 6 1 All $450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 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 30 percent. Accounts receivable Inventory Plant and equipment Total Investment times times time a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together. Collection cost Production and selling costs Total collection, production, and selling costs 4 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together.

Global Services is considering a promotional campaign that will increase annual credit sales by $450,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 2 6 1 All $450,000 of the sales will be collectible. However, collection costs will be 6 percent of sales, and production and selling costs will be 71 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 30 percent. Accounts receivable Inventory Plant and equipment Total Investment times times time a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together. Collection cost Production and selling costs Total collection, production, and selling costs 4 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 13P

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