Table 4.4
Mr. Lee is considering a capacity expansion for his supermarket. The annual sales projected for the next five years follow. The current capacity is equivalent to $300,000 sales. Assume a 20 percent pretax profit margin.
$$\begin{array} { | c | c | }
\hline \text { Year } & \begin{array} { c }
\text { Annual Sales } \
( \$ 000 )
\end{array} \
\hline 1 & 310 \
2 & 320 \
3 & 340 \
4 & 370 \
5 & 400 \
\hline
\end{array}$$
-Using the information in Table 4.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),how much would pretax cash flow in year 5 increase because of this expansion?
A) less than $7000
B) more than $7000 but less than $10,000
C) more than $10,000 but less than $13,000
D) more than $13,000

Question

Table 4.4
Mr. Lee is considering a capacity expansion for his supermarket. The annual sales projected for the next five years follow. The current capacity is equivalent to $300,000 sales. Assume a 20 percent pretax profit margin.
 $$\begin{array} { | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Annual Sales } \
( \$ 000 )
\end{array} \
\hline 1 & 310 \
2 & 320 \
3 & 340 \
4 & 370 \
5 & 400 \
\hline
\end{array}$$
-Using the information in Table 4.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),how much would pretax cash flow in year 5 increase because of this expansion?
A) less than $7000
B) more than $7000 but less than $10,000
C) more than $10,000 but less than $13,000
D) more than $13,000

Quizplus · Accepted Answer

In year 5, sales are projected to be $400,000. Without expansion, the capacity is $300,000, so $100,000 of sales would be lost. With expansion to $360,000, only $40,000 of sales would be lost. The difference is $60,000 in sales. With a 20% profit margin, the increase in pretax cash flow is $60,000 * 0.20 = $12,000.

Table 44 Mr -Using the Information in Table 4

Table 44
Mr -Using the Information in Table 4