Question
Net cash flows for a marketing campaignMarcus Tube, a manufacturer of high-quality aluminum tubing, has maintained stable sales and profits over the past 10 years.
Net cash flows for a marketing campaignMarcus 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
3%
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
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, totaled
$19,200,000.
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
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for each of the next 5 years; cost of goods sold is expected to remain at
79%
of sales; general and administrative expense (exclusive of any marketing campaign outlays) is expected to remain at
8%
of sales; and annual depreciation expense is expected to remain at
$510,000.
Assuming a
40%
tax rate, find the net cash flows over the next 5 years associated with the proposed marketing campaign.
The annual operating cash flow without the marketing campaign will be
$nothing.
(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 | $ |
| ||||||||
| Cost of good sold (79%) | $ |
| ||||||||
| Gross profit | $ |
| ||||||||
| Less: Operating expenses | ||||||||||
| General and administrative expense (8%) | $ |
| ||||||||
| Marketing campaign | $ |
| ||||||||
| Depreciation | $ |
| ||||||||
| Total operating expenses | $ |
| ||||||||
| Net profit before taxes | $ |
| ||||||||
| Less: Taxes (40%) | $ |
| ||||||||
| Net profit after taxes | $ |
| ||||||||
| Operating cash flow | $ |
| ||||||||
| Incremental cash flow | $ |
| ||||||||
(Round to the nearest $1,000.)
| Marcus Tube | ||||||||||
| Calculation of Relevant Cash Flow ($000) | ||||||||||
|
|
| 2020 | ||||||||
| Sales | $ |
| ||||||||
| Cost of good sold (79%) | $ |
| ||||||||
| Gross profit | $ |
| ||||||||
| Less: Operating expenses | ||||||||||
| General and administrative expense (8%) | $ |
| ||||||||
| Marketing campaign | $ |
| ||||||||
| Depreciation | $ |
| ||||||||
| Total operating expenses | $ |
| ||||||||
| Net profit before taxes | $ |
| ||||||||
| Less: Taxes (40%) | $ |
| ||||||||
| Net profit after taxes | $ |
| ||||||||
| Operating cash flow | $ |
| ||||||||
| Incremental cash flow | $ |
| ||||||||
(Round to the nearest $1,000.)
| Marcus Tube | ||||||||||
| Calculation of Relevant Cash Flow ($000) | ||||||||||
|
|
| 2021 | ||||||||
| Sales | $ |
| ||||||||
| Cost of good sold (79%) | $ |
| ||||||||
| Gross profit | $ |
| ||||||||
| Less: Operating expenses | ||||||||||
| General and administrative expense (8%) | $ |
| ||||||||
| Marketing campaign | $ |
| ||||||||
| Depreciation | $ |
| ||||||||
| Total operating expenses | $ |
| ||||||||
| Net profit before taxes | $ |
| ||||||||
| Less: Taxes (40%) | $ |
| ||||||||
| Net profit after taxes | $ |
| ||||||||
| Operating cash flow | $ |
| ||||||||
| Incremental cash flow | $ |
| ||||||||
(Round to the nearest $1,000.)
| Marcus Tube | ||||||||||
| Calculation of Relevant Cash Flow ($000) | ||||||||||
|
|
| 2022 | ||||||||
| Sales | $ |
| ||||||||
| Cost of good sold (79%) | $ |
| ||||||||
| Gross profit | $ |
| ||||||||
| Less: Operating expenses | ||||||||||
| General and administrative expense (8%) | $ |
| ||||||||
| Marketing campaign | $ |
| ||||||||
| Depreciation | $ |
| ||||||||
| Total operating expenses | $ |
| ||||||||
| Net profit before taxes | $ |
| ||||||||
| Less: Taxes (40%) | $ |
| ||||||||
| Net profit after taxes | $ |
| ||||||||
| Operating cash flow | $ |
| ||||||||
| Incremental cash flow | $ |
| ||||||||
(Round to the nearest $1,000.)
| Marcus Tube | ||||||||||
| Calculation of Relevant Cash Flow ($000) | ||||||||||
|
|
| 2023 | ||||||||
| Sales | $ |
| ||||||||
| Cost of good sold (79%) | $ |
| ||||||||
| Gross profit | $ |
| ||||||||
| Less: Operating expenses | ||||||||||
| General and administrative expense (8%) | $ |
| ||||||||
| Marketing campaign | $ |
| ||||||||
| Depreciation | $ |
| ||||||||
| Total operating expenses | $ |
| ||||||||
| Net profit before taxes | $ |
| ||||||||
| Less: Taxes (40%) | $ |
| ||||||||
| Net profit after taxes | $ |
| ||||||||
| Operating cash flow | $ |
| ||||||||
| Incremental cash flow | $ |
| ||||||||
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Finance Applications And Theory
Authors: Marcia Cornett, Troy Adair, John Nofsinger
1st Edition
0073382256, 9780073382258
