Net cash flows for a marketing campaign Marcus Tube, a manufacturer of high-quality aluminum tubing, has maintained stable sales and profits over the past 10 years. Although the market for aluminum tubing has been expanding by 5% per year, Marcus has been unsuccessful in sharing this growth. To increase its sales, the firm is considering an aggressive marketing campaign that centers on regularly running ads in all relevant trade journals and exhibiting products at all major regional and national trade shows. The campaign is expected to require an annual tax-deductible expenditure of $142,000 over the next 5 years. Sales revenue, as shown in the income statement for 2018 , totaled $19,600,000. If the proposed marketing campaign is not initiated, sales are expected to remain at this level in each of the next 5 years, 2019 through 2023. With the marketing campaign, sales are expected to rise to the levels shown in the table for each of the next 5 years; cost of goods sold is expected to remain at 72% of sales; general and administrative expense (exclusive of any marketing campaign outlays) is expected to remain at 11% of sales; and annual depreciation expense is expected to remain at $500,000. Assuming a 40% tax rate, find the net cash flows over the next 5 years associated with the proposed marketing campaign. Marcus Tube Sales Forecast Year Sales revenue 2019 $20,100,000 2020 20,600,000 2021 21,100,000 2022 22,100,000 2023 23,100,000 $19,600,000 14,112,000 $5,488,000 Marcus Tube Income Statement for the Year Ended December 31, 2018 Sales revenue Less: Cost of goods sold (72%) Gross profits Less: Operating expenses General and administrative expense (11%) Depreciation expense Total operating expense Earnings before interest and taxes Less: Taxes (40%) Net operating profit after taxes $2,156,000 500,000 $2,656,000 $2,832,000 1,132,800 $1,699,200 The annual operating cash flow without the marketing campaign will be $ 2,385,600". (Round to the nearest dollar.) Calculate the net profits after taxes and operating cash flows with the marketing campaign below: (Round to the nearest $1,000.) Marcus Tube Calculation of Relevant Cash Flow ($000) 2019 Sales $ 20,700 $ 14,697 $ 6,003 Cost of good sold (71%) Gross profit Less: Operating expenses General and administrative expense (11%) $ 2,277 $ 156 Marketing campaign Depreciation $ 510 Total operating expenses $ 2,943 Net profit before taxes $ 3,060 1,224 Less: Taxes (40%) $ Net profit after taxes $ 1,836 Operating cash flow $ 2,346 Incremental cash flow $ (40) Round to the nearest $1,000.) Marcus Tube Calculation of Relevant Cash Flow ($000) 2020 Sales $ 21,200 Cost of good sold (71%) $ 15,052 Gross profit $ 6,148 Less: Operating expenses General and administrative expense (11%) $ 2,332 Marketing campaign $ 156 Depreciation $ 510 $ 2,998 Total operating expenses Net profit before taxes $ 3,150 Less: Taxes (40%) $ 1,260 Net profit after taxes $ 1,890 Operating cash flow $ 2,400 14 Incremental cash flow $ -und to the nearest $1,000.) Marcus Tube Calculation of Relevant Cash Flow ($000) 2021 Sales 21,700 $ $ Cost of good sold (71%) 15,407 $ 6,293 Gross profit Less: Operating expenses General and administrative expense (11%) $ 2,387 $ 156 Marketing campaign Depreciation $ 510 Total operating expenses $ 3,053 Net profit before taxes 3,240 $ $ Less: Taxes (40%) 1,296 Net profit after taxes $ 1,944 Operating cash flow 2,454 $ $ 68 Incremental cash flow Round to the nearest $1,000.) Marcus Tube Calculation of Relevant Cash Flow ($000) 2022 Sales $ 22,700 $ 16,117 $ 6,583 Cost of good sold (71%) Gross profit Less: Operating expenses General and administrative expense (11%) $ 2,497 Marketing campaign $ 156 Depreciation $ 510 $ 3,163 Total operating expenses Net profit before taxes Less: Taxes (40%) $ 3,420 $ 1,368 Net profit after taxes $ 2,052 Operating cash flow $ 2,562 $ 176 Incremental cash flow Dund to the nearest $1,000.) Marcus Tube Calculation of Relevant Cash Flow ($000) 2023 Sales $ Cost of good sold (71%) $ Gross profit $ Less: Operating expenses General and administrative expense (11%) $ Marketing campaign $ II II $ Depreciation Total operating expenses Net profit before taxes $ $ Less: Taxes (40%) $ Net profit after taxes $ Operating cash flow $ Incremental cash flow $