Question

Roche Brothers is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $175,000 upon completion and a five-year lease. The increase in rent for the addition is $11,000 per month. The annual sales projected through year 5 follow. The current effective capacity is equival to 500,000 customers per year. Assume a 3 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 $ - 175000. (Enter your response as an integer.) The projected annual incremental pretax cash flows attributable to this expansion in year 1 are $(Enter your response as an integer.) Data Table -X 1 4 5 Year Customers Average Sales per Customer 560,000 $51.00 2 600,000 $54.00 3 685,000 $58.00 700,000 $62.00 715,000 $66.00 Print Done

Answer 1

Year	0	1	2	3	4	5
Customers		560,000	600,000	685,000	700,000	700,000
Customers>500,000		60,000	100,000	185,000	200,000	200,000
Average sales per customer		51	54	58	62	66
Total sales		3,060,000	5,400,000	10,730,000	12,400,000	13,200,000
Profit on sales @ 3%		91,800	162,000	321,900	372,000	396,000
Less: Additional rent		(132,000)	(132,000)	(132,000)	(132,000)	(132,000)
Contributions per year		(40,200)	30,000	189,900	240,000	264,000
Lease down payment	(175,000)
Incremental pre-tax cash flows	(175,000)	(40,200)	30,000	189,900	240,000	264,000