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),and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4,how much would pretax cash flow increase in total for all years (years 1 through 5)?
A) less than $30,000
B) more than $30,000 but less than $40,000
C) more than $40,000 but less than $50,000
D) more than $50,000

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),and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4,how much would pretax cash flow increase in total for all years (years 1 through 5)?
A) less than $30,000
B) more than $30,000 but less than $40,000
C) more than $40,000 but less than $50,000
D) more than $50,000

Quizplus · Accepted Answer

The pretax cash flow increase is calculated by considering the additional sales due to capacity expansion and applying the 20% profit margin. For years 1-3, the capacity is increased to $360,000, allowing for additional sales of $10,000, $20,000, and $40,000 respectively. For years 4-5, the capacity is increased to $400,000, allowing for additional sales of $10,000 and $0 respectively. The total additional sales over 5 years is $80,000, and with a 20% profit margin, the pretax cash flow increase is $16,000.

Table 44 Mr -Using the Information in Table 4

Table 44
Mr -Using the Information in Table 4