Question

 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 all 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 $150,000 over the next 5 years. Sales​ revenue, as shown in the income statement for 2018

Marcus Tube Income Statement for  
the Year Ended December 31, 2018  
Sales revenue   $20,600,000
Less: Cost of goods sold   15,450,000
Gross profits   $5,150,000
Less: Operating expenses  
General and administrative expense   $1,648,000
Depreciation expense   490,000
Total operating expense   $2,138,000
Earnings before interest and taxes   $3,012,000
Less: Taxes   1,204,800
Net operating profit after taxes   $1,807,200

totaled $20,600,000.

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

  
Year   Sales revenue
2019   $21,100,000
2020   21,600,000
2021   22,100,000
2022   23,100,000
2023   24,100,000

for each of the next 5​ years; cost of goods sold is expected to remain at 75% 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 $490,000. Assuming a 40% tax​ rate, find the net cash flows over the next 5 years associated with the proposed marketing campaign.

Answer 1