If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion? If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative
If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion? If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 46P
Related questions
Question
Roche Brother is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $200,000 upon completion and a 5-year lease. The increase in rent for the addition is $10,000 per month. The annual sales projected through year 5 follows. The current effective capacity is equivalent to 500,000 customers per year. Assume a 2% pretax profit on sales
Year |
1 |
2 |
3 |
4 |
5 |
Customers |
560,000 |
600,000 |
685,000 |
700,000 |
715,000 |
Ave. Sales per Customer |
50.00 |
53.00 |
56.00 |
60.00 |
64.00 |
- If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion?
- If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative?
- Compute the NPV (
net present value ) for each alternative. Assume an 8% discount rate, which expansion alternative is better? - Show breakdown of work
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