Question

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% P11-23 (similar to) Assigned Media Question Help Net cash flows for a marketing campaign Marcus Tube, a manufacturer of high-quality aluminum tubing, has maintained stable sales and profits over the past 10 years. Although the market for aluminum tubing has been expanding by 5% per year, Marcus has been unsuccessful in sharing this growth. To increase its sales, the firm is considering an aggressive marketing campaign that centers on regularly running ads in al relevant trade journals and exhibiting products at all major regional and national trade shows. The campaign is expected to require an annual tax-deductible expenditure of $156,000 over the next 5 years. Sales revenue, as shown in the income statement for 2018 totaled S20,000,000. If the proposed marketing campaign is not initiated, sales are expected to remain at this level in each of the next 5 years, 2019 through 2023. With the marketing campaign, sales are expected to rise to the levels shown in the table for each of the next 5 years, cost of goods sold is expected to remain at 71% of sales, general and administrative expense (exclusive of any marketing campaign outlays) is expected to remain at 8% of sales and annual depreciation expense is expected to remain at $510,000. Assuming a 40% tax rate, find the net cash flows over the next 5 years associated with the proposed marketing campaign The annual operating cash flow without the marketing campaign will be $ (Round to the nearest dollar) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Marcus Tube Income Statement for the Year Ended December 31, 2018 sales revenue $20,000,000 Less: Cost of goods sold (719) 14.200.000 Gross profits $5,800,000 Less: Operating expenses General and administrative expense (896) $1.500.000 Depreciation expense 510.000 Total operating expense $2.110.000 Eamings before interest and taxes $3,690,000 Less Taxes (40%) 1.470.000 Net operating profit after taxes $2,214,000 Enter your answer in the answer box and then click Check Answer 5 mining

Answer 1

	2018	2019	2020	2021	2022	2023
Sales revenue	200,00,000	205,00,000	210,00,000	215,00,000	225,00,000	235,00,000
Less : Cost of goods sold (71%)	142,00,000	145,55,000	149,10,000	152,65,000	159,75,000	166,85,000
Gross profits	58,00,000	59,45,000	60,90,000	62,35,000	65,25,000	68,15,000
Less : Operating expenses
General and administrative expense (10%)	16,00,000	16,40,000	16,80,000	17,20,000	18,00,000	18,80,000
Depreciation expenses	5,10,000	5,10,000	5,10,000	5,10,000	5,10,000	5,10,000
Total operating expenses	21,10,000	21,50,000	21,90,000	22,30,000	23,10,000	23,90,000
Less :Marketing campaign related expenditure	0
Earning before interest and taxes	36,90,000	37,95,000	39,00,000	40,05,000	42,15,000	44,25,000
Less : Taxes (40%)	14,76,000	15,18,000	15,60,000	16,02,000	16,86,000	17,70,000
Net operating profit after taxes	22,14,000	22,77,000	23,40,000	24,03,000	25,29,000	26,55,000
Add : Depreciation	5,10,000	5,10,000	5,10,000	5,10,000	5,10,000	5,10,000
Net cash flow	27,24,000	27,87,000	28,50,000	29,13,000	30,39,000	31,65,000
Operating cash flow without marketing campaign = 2,724,000

B 138 2018 200,00,000 142,00,000 =B140-B141 2019 205,00,000 =C140*71% =C140-C141 2020 210,00,000 =D140*71% =D140-D141 2021 215,00,000 =E140*71% =E140-E141 2022 225,00,000 =F140*71% =F140-F141 2023 235,00,000 =G140*71% =G140-G141 139 140 Sales revenue 141 Less: Cost of goods sold (71%) 142 Gross profits 143 Less: Operating expenses 144 General and administrative expense (10%) 145 Depreciation expenses 146 Total operating expenses 147 Less :Marketing campaign related expenditure 148 Earning before interest and taxes 149 Less : Taxes (40%) 150 Net operating profit after taxes 151 Add : Depreciation 152 Net cash flow 16,00,000 5,10,000 =SUM(B144:B145) =C140*8% 5,10,000 =SUM(C144:C145) =D140*8% 5,10,000 =SUM(D144:D145) =E140*8% 5,10,000 =SUM(E144:E145) =F140*8% 5,10,000 =SUM(F144:F145) =G140*8% 5,10,000 =SUM(G144:G145) =B142-B146-B147 =B148*40% =B148-B149 =B145 =B150+B151 =C142-C146-C147 =C148*40% =C148-C149 =C145 =C150+C151 =D142-D146-D147 =D148*40% =D148-D149 =D145 =D150+D151 =E142-E146-E147 =E148*40% =E148-E149 =E145 =E150+E151 =F142-F146-F147 =F148*40% =F148-F149 =F145 =F150+F151 =G142-G146-G147 =G148*40% =G148-G149 =G145 =G150+G151 153 154 Operating cash flow without marketing campaign = 2,724,000 155