Problem 7-26 Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $620,000. 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 All $620,000 of the sales will be collectible. However, collection costs will be 2 percent of sales, and production and selling costs will be 79 percent of sales. The cost to carry inventory will be 5 percent of inventory. Amortization expense on plant and equipment will be 6 percent of plant and equipment. The tax rate is 20 percent. Inventory is calculated using sales and not cost of goods sold. 5x 8x 2x 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 124000 $ $ $ 310000 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together. Collection cont Production and selling costs Total costs related to accounts receivable c. Compute the costs of carrying inventory.

Problem 7-26 Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $620,000. 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 All $620,000 of the sales will be collectible. However, collection costs will be 2 percent of sales, and production and selling costs will be 79 percent of sales. The cost to carry inventory will be 5 percent of inventory. Amortization expense on plant and equipment will be 6 percent of plant and equipment. The tax rate is 20 percent. Inventory is calculated using sales and not cost of goods sold. 5x 8x 2x 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 124000 $ $ $ 310000 b. Compute the accounts receivable collection costs and production and selling costs and add the two figures together. Collection cont Production and selling costs Total costs related to accounts receivable c. Compute the costs of carrying inventory.

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6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter15: Managing Short-term Assets

Section: Chapter Questions

Problem 12PROB

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51:48 ces Problem 7-26 Apollo Data Systems is considering a promotional campaign that will increase annual credit sales by $556,000. 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 $556,000 of the sales will be collectible. However, collection costs will be 2 percent of sales, and production and selling costs will be 70 percent of sales. The cost to carry inventory will be 10 percent of inventory. Amortization expense on plant and equipment will be 8 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 $ $ Activate Windows Go…
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