Calculate the cash flows for each year for each option
Case QUEStIOI'I 9-31 \"Maybe I should have stuck wlth teaching high school art. No matter whatI try, I can't seem to turn that Roanoke plant around.\" That's how the meetlng between Warren Wingo, CEO of clothing manufacturer Wingo Deslgns, and Angle Tlllery, vice president of corporate lendlng at First National Bank, ended. Wlngo and Tlllery had just concluded that the Roanoke plant was draining corporate cash ow and income, and should be closed on December 31, 2013. When he returned to his ofce, Wlngo summoned corporate controller Ron Wright to tell him the bad news. \"Ron, I wish there were some way to turn this situatlon around. We've had so many bad things happen latelythe re in Lexington, the strike in Pulaskl, and now this. Why dldn't I stay at Cave Spring ngh?\" \"Warren, it may not be as bad as it seems,"r Ron replied. \"Let's put our heads together and do some investigating. We've got some great folks working here, and I bet if we asked them to think about it, they could come up with some options.\" With that encouragement, Warren sent Ron out to find some way of disposing of the Roanoke facility. Early Monday morning, Ron ran into Warren's ofce waving a legal pad. \"We've done it, Warren. We've got three good optlons for the Roanoke plant. One of them even has us keeping the plant.\" Warren listened intently as Ron laid out the three optlons his staff had developed: Option 1 Sell the plant immediateiy to Tinsley Togs for $9,000,000. Option 2 Lease the plant for four years to Star City Mills (one of Wingo's suppliers). Under the lease terms, Star Clty would pay Wingo $2,400,000 in rent each year and would giant Wingo a 10% discount on fabrlc purchased by another of its plants. The fabric normally sells for $2 per yard, and Wingo expects to purchase 2,320,000 yards of It each year. Star City would cover all the plant's ownership costs, including property taxa. At the end of the lease, Wingo would sell the plant for $2,000,000. Option 3 Use the plant for four years to make souvenir 2022 Winter Olympic jackets. Fixed overhead, before equlpment upgrad, is estlmated at $200,000 a year. The jackets are expected to have a varlahle cost of $33 per unit and to sell for $42 each. Estimated unit sales are as follows, annual production would equal sales. Year Jacket Sales In Units 2019 200,000 2020 300,000 2021 400,000 2022 100,000 To manufacture the jackets, some of the plant's equipment would have to be replaced at an immedlate com of $1,500,000. The equlpment would have a useful llfe of four years. Because of the upgraded equipment, Wlngo could sell the plant for $3,000,000 at the end of four years. Calculate the cash ows for each year for each option? (Do not ieave any answer eld blank. Enter 0 for amounts. Enter negative amounB using either a negative sign preceding the number e.g. 45.) Timing Amount Option 1 OptInn 2 Optlan 3 v v x Year 0 $ 9000000 . I 9000000 I ._. $ '1 v x Year 1 $ 2874000 ZEN-0000 ._. $I I v v x Year 2 $ 2874000 27000000 ._. $I I 'I 'I X Year 3 $ 2874000 3500000 ._. $I I v v x Year 4- * 4874000 I 3900000
