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a. Compute the investments in accounts receivable, Inventory, and plant and equipment based on the turnover ratios. What is the total value of the Investment made? Accounts receivable Inventory Plant and equipment Total Investment $120000 $ 75000 Yes No $ 300000 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together. 495000 Collection cost Production and selling costs Total costs related to accounts receivable Yes No $ $ 462000 18000 c. Compute the costs of carrying Inventory. Cost of carrying Inventory $ 4500 d. Compute the amortization expense on new plant and equipment. Amortization expense $ 21000 e. Add together all the costs in parts b, c, and d. Total cost $ 505500 f. Compute Income after taxes. Income after taxes $[ g. If the firm has required return on investment of 12 percent, should it undertake the promotional campaign described throughout this problem? $ 480000 Problem 7-27 In the previous problem, if Inventory had only been 2 times: a. What would be the new value for Inventory Investment? Inventory Investment $ b.1 What would be the return on Investment? You need to recompute the total Investment and the total costs of the campaign to work toward computing Income after taxes. (Round the final answer to 1 decimal place.) Rate of return % b.2. Should the campaign be undertaken?

a. Compute the investments in accounts receivable, Inventory, and plant and equipment based on the turnover ratios. What is the total value of the Investment made? Accounts receivable Inventory Plant and equipment Total Investment $120000 $ 75000 Yes No $ 300000 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together. 495000 Collection cost Production and selling costs Total costs related to accounts receivable Yes No $ $ 462000 18000 c. Compute the costs of carrying Inventory. Cost of carrying Inventory $ 4500 d. Compute the amortization expense on new plant and equipment. Amortization expense $ 21000 e. Add together all the costs in parts b, c, and d. Total cost $ 505500 f. Compute Income after taxes. Income after taxes $[ g. If the firm has required return on investment of 12 percent, should it undertake the promotional campaign described throughout this problem? $ 480000 Problem 7-27 In the previous problem, if Inventory had only been 2 times: a. What would be the new value for Inventory Investment? Inventory Investment $ b.1 What would be the return on Investment? You need to recompute the total Investment and the total costs of the campaign to work toward computing Income after taxes. (Round the final answer to 1 decimal place.) Rate of return % b.2. Should the campaign be undertaken?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $600,000. The company has a 40% cost of goods sold and will require Investments in accounts receivable, Inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 5x 8x 2x All $600,000 of the sales will be collectible. However, collection costs will be 3 percent of sales, and production and selling costs will be 77 percent of sales. The cost to carry Inventory will be 6 percent of Inventory. Amortization expense on plant and equipment will be 7 percent of plant and equipment. The tax rate is 30 percent. Inventory is calculated using cost of goods sold and not sales.
Transcribed Image Text:Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $600,000. The company has a 40% cost of goods sold and will require Investments in accounts receivable, Inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 5x 8x 2x All $600,000 of the sales will be collectible. However, collection costs will be 3 percent of sales, and production and selling costs will be 77 percent of sales. The cost to carry Inventory will be 6 percent of Inventory. Amortization expense on plant and equipment will be 7 percent of plant and equipment. The tax rate is 30 percent. Inventory is calculated using cost of goods sold and not sales.
a. Compute the investments in accounts receivable, Inventory, and plant and equipment based on the turnover ratios. What is the total value of the investment made? Accounts receivable Inventory Plant and equipment Total Investment Collection cost Production and selling costs $120000 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together. $ 75080 f. Compute Income after taxes. Income after taxes $ 300000 Total costs related to accounts receivable $ 495080 Yes O No Amortization expense e. Add together all the costs in parts b, c, and d. Total cost $ 505500 Ⓒ c. Compute the costs of carrying Inventory. Cost of carrying Inventory $4500 d. Compute the amortization expense on new plant and equipment. $ 21000 Ⓒ Yes No $ 18000 $ 462000 $ 480000 g. If the firm has required return on Investment of 12 percent, should it undertake the promotional campaign described throughout this problem? Problem 7-27 In the previous problem, If Inventory had only been 2 times: a.What would be the new value for Inventory Investment? Inventory Investment $ b.1 What would be the return on Investment? You need to recompute the total Investment and the total costs of the campaign to work toward computing Income after taxes. (Round the final answer to 1 decimal place.) Rate of return % b.2 Should the campaign be undertaken?
Transcribed Image Text:a. Compute the investments in accounts receivable, Inventory, and plant and equipment based on the turnover ratios. What is the total value of the investment made? Accounts receivable Inventory Plant and equipment Total Investment Collection cost Production and selling costs $120000 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together. $ 75080 f. Compute Income after taxes. Income after taxes $ 300000 Total costs related to accounts receivable $ 495080 Yes O No Amortization expense e. Add together all the costs in parts b, c, and d. Total cost $ 505500 Ⓒ c. Compute the costs of carrying Inventory. Cost of carrying Inventory $4500 d. Compute the amortization expense on new plant and equipment. $ 21000 Ⓒ Yes No $ 18000 $ 462000 $ 480000 g. If the firm has required return on Investment of 12 percent, should it undertake the promotional campaign described throughout this problem? Problem 7-27 In the previous problem, If Inventory had only been 2 times: a.What would be the new value for Inventory Investment? Inventory Investment $ b.1 What would be the return on Investment? You need to recompute the total Investment and the total costs of the campaign to work toward computing Income after taxes. (Round the final answer to 1 decimal place.) Rate of return % b.2 Should the campaign be undertaken?
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