Table 6.4
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.

-Using the information in Table 6.4,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 6.4
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.
 
-Using the information in Table 6.4,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 based on the additional sales capacity and the corresponding increase in sales revenue over the years. The expansion to $360,000 sales capacity initially and then to $400,000 in year 4 results in a total increase in pretax cash flow that falls within the range of more than $40,000 but less than $50,000 over the five-year period.

Table 6.4 Mr.Lee Is Considering a Capacity Expansion for His Supermarket.The Annual