Question
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**
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