Question 2Part A and BYou are the CEO of Rahway Engineering and want to accelerate the expected sales growth (payments from customers)for your new manufacturing control system.Marketing has proposed expanding both the sales force and advertising to accomplish this.Expected cash flows prepared by Rahway Engineering's Finance Department are as shown bellow.Expected Operating Cash Flows($s in 000s)Expansion CaseYearNew Control Systems SoldPrice/SystemPayments from CustomersCash-OutflowSalaries and BenefitsAdvertisingCars for Sales ForceOtherTotal Cash-OutflowNet Operating Cash FlowNo Expansion Case (Do Nothing)($s in 000s)YearNew Control Systems SoldPrice/SystemPayments from CustomersSalaries and BenefitsAdvertisingCars for Sales ForceOtherTotal Cash-OutflowNet Operating Cash FlowRahway's CFO has determined aPart A45$325$14,625$10,450$2,675$2,613$500$16,238($1,613)34$325$11,050$4,703$1,204$705$335$6,947$4,103285$325$27,625$18,275$2,775$4,569$515$26,134$1,491257$325$18,5253(ii) Which alternative should the company pursue? Explain your answer.125$325$40,625$2,950$5,025$530$28,605$12,0203476$325$24,700155$325$50,375$20,100 $21,550 $21,900$3,085$3,230$5,388$5,475$546$563$30,569$31,168$19,806$25,707484$325$27,3005175$325$56,875(i) What risk factors might the CFO used to lead her to choose the required rate of return shown above?594$325$30,5506185$325$60,125$23,450$3,385$5,863$580$33,277$26,8486$7,310 $8,040$8,620$8,760$10,350$1,249$1,328 $1,388$1,454$1,523$1,097$1,206$1,293$1,314$1,553$345$355$366$377$388$10,000$10,929$11,667 $11,905$13,814$8,525 $13,771 $15,633 $18,645 $17,38696$325$31,20015% required rate of return should be used to choose between these alternatives

The internal rate of return (IRR) rule states that a project or investment should be pursued if its…

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Which alternative should the company pursue? Explain your answer.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter3: Income Flows Versus Cash Flows: Understanding The Statement Of Cash Flow

Section: Chapter Questions

Problem 17PC: Interpreting the Statement of Cash Flows. Tesla Motors manufactures high performance electric...

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