## Answers

Annual Incremental pretax cash flows attributable to expansion | ||||||

Year | 1 | 2 | 3 | 4 | 5 | |

a) | Current Capacity | 500000 | 500000 | 500000 | 500000 | 500000 |

b) | Expanded Capacity | 700000 | 700000 | 700000 | 700000 | 700000 |

c) | Projected Sales | 550000 | 610000 | 675000 | 700000 | 725000 |

d) | Average Sales per Customer | $ 51.00 | $ 54.00 | $ 58.00 | $ 60.00 | $ 64.00 |

e) | Sales with Expanded Capacity[lower of (b) or (c)] | 550000 | 610000 | 675000 | 700000 | 700000 |

f) | Incremental Sales Revenue {[(e)-(a)]*(d)} | $ 2,550,000.00 | $ 5,940,000.00 | $ 10,150,000.00 | $ 12,000,000.00 | $ 12,800,000.00 |

g) | Pre-tax Profit on Incremental Sales (f)*3% | $ 76,500.00 | $ 178,200.00 | $ 304,500.00 | $ 360,000.00 | $ 384,000.00 |

h) | Incremental Rent | $ 10,000.00 | $ 10,000.00 | $ 10,000.00 | $ 10,000.00 | $ 10,000.00 |

i) | Cost for additional Suit | $ 175,000.00 | 0 | 0 | 0 | 0 |

j) | Annual Incremental pretax cash flows attributable to expansion [(g)-(h)-(i)] | $ (108,500.00) | $ 168,200.00 | $ 294,500.00 | $ 350,000.00 | $ 374,000.00 |

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