Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Relevant cash flows for a marketing campaign Marcus Tube, a manufacturer of high-quality aluminum tubing , has maintained stable sales and profits over the past

Relevant 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 3% per year, Marcus has been unsuccessful in sharing this growth. To increase its sales, the firm is considering an agressive marketing campaign that centers on regularly running ads in all relevant trade journals and web sites and exhibiting products at all major regional and national trade shows. The campaign is expected to require an annual tax-deductible exoenditure of $150,00 over the next 5 years. Sales revenue, as shown in the accompanying income for 2015, totaled $20,000,000. If the proposed marketing campaign is not initiated, sales are expected to remain at this level in each of the next 5 years, 2016 through 2020. With the marketing campaign, sales are expected to rise to the levels shown in the acompanying table for each of the next 5 years; cost of goods sold is expected to remain at 80% of sales; general and administrative expense (exclusive of any marketing campaign out-lays) is expected to remain at $500,000, Assuming a 40% tax rate, find the relevant cash flows over the next 5 years associated with the proposed marketing campaign.

Marcus Table income statement for the Year ended Dec. 31, 2015
Sales Revenue $20,000,000
Less: Cost of goods sold (80%) 16,000,000
Gross profits 4,000,000
Less Operating expenses
General and administrative expenses (10%) $2,000,000
Depreciation expense 500,000
Total operating expense $2,500,000
Earnings before interest and taxes $1,500,000
Less: taxes (rate = 40%) 600,000
Net operating profit after taxes 900,000
Marcus tube Sales forecast
Year Sales Revenue
2016 $20,500,000
2017 21,000,000
2018 21,500,000
2019 22,500,000
2020 23,500,000

**I need the formulas for how everything is found minus what is already given**

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Health Care Finance And The Mechanics Of Insurance And Reimbursement

Authors: Michael K. Harrington

1st Edition

1284026124, 9781284026122

More Books

Students also viewed these Finance questions

Question

5-8 What are the advantages and disadvantages of the BYOD movement?

Answered: 1 week ago