Question

Roche Brothers is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $225,000 upon completion and a five-year lease. The increase in rent for the addition is $10.000 per month. The annual sales projected through year 5 follow. The Current effective capacity is equivalent to 500,000 customers per year. Assume a 2 percent pretax profit on sales Click the icon to view the annual sales projections a. If Roche expands its capacity to serve 700,000 customers per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion? The projected annual incremental pretax cash flows attributable to this expansion in year 0 are $ (Enter your response as an integer.)

Answer 1

olution, we need to calculate projected incremental portor Cash flow attributable to this expension In year of year o, means at beginning or - starting of the expansion, the projected incremental pre-cash flow of the year o is 5-$225,000] that is the cash flow to landownex for building the additional suit. Incremental Pre-Tax Cash flow for Yeart to year 5 - = = = = = = = = Year 1 12 13 14 15 Customer 5,60 noo 610,000 685,000 1700,000 | 725,000 Alor of customed exceeding | 60,000 | 110.000 185,000 200,000 £25,000 50,000 Ang sales $50.00 $54.00 $58.00 $60.00 $64.00 Per customer Additional $3,000,000 $5,940,000 $10,730,000 ($12,000,000 $14,400,000 Sales 2/ Profit $60,000 $118800 $210,600 $240,000 $288,000 on sale wi Additional Ci20,000)|(180,000) (120,000) |(120,000)|(120,000) Rent $ 60,000 4,600 $18 10,000 $ 168,000