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 $8,000 per month. The annual sales projected through year 5 follow. The current effective capacity is equivalent to​ 500,000 customers per year. Assume 2% percent pretax profit on sales.

YEAR : 1 2 3 4 5

Customers: 550,000 610,000 685,000 700,000 725,000

Avg sales/customer: $51.00   $53.00 $58.00 $60.00 $66.00

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.

The projected annual incremental pretax cash flows attributable to this expansion in year 1 are $_______.

The projected annual incremental pretax cash flows attributable to this expansion in year 2 are $__________

The projected annual incremental pretax cash flows attributable to this expansion in year 3 are $________>

The projected annual incremental pretax cash flows attributable to this expansion in year 4 are $ ________.

The projected annual incremental pretax cash flows attributable to this expansion in year 5 are $________.

b) If Roche expands its capacity to serve​ 700,000 customers per year at the end of year​ 2, the landowner will build the same addition for $230,000 and a​ 3-year lease at $11,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion​alternative?

The projected annual incremental pretax cash flows attributable to this expansion in year 2 are $________

The projected annual incremental pretax cash flows attributable to this expansion in year 3 are $________..

The projected annual incremental pretax cash flows attributable to this expansion in year 4 are $________.

The projected annual incremental pretax cash flows attributable to this expansion in year 5 are $________.

Answer 1