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Unformatted text preview: keting campaign, sales are expected to rise to the levels shown in the
accompanying 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 outlays) is expected to remain at 10% of sales; and annual
depreciation expense 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.
for the Year Ended December 31, 2003 Sales revenue 16,000,000 Less: Cost of goods sold (80%)
General and administrative expense (10%)
Net profits before taxes
Less: Taxes (rate 2004 $20,500,000 2005 21,000,000 500,000 2006 21,500,000 2,500,000 2007 22,500,000 $ 1,500,000 2008 23,500,000 40%) Net profits after taxes 8–23 Sales revenue $2,000,000 Total operating expense LG5 Year $ 4,000,000 Less: Operating expenses LG4 Marcus Tube
Sales Forecast $20,000,000 600,000
$ 900,000 Relevant cash flows—No terminal value Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated
machine. The old machine was purchased 3 years ago at a cost of $50,000, and
this amount was being depreciated under MACRS using a 5-year recovery
period. The machine has 5 years of usable life remaining. The new machine that
is being considered costs $76,000 and requires $4,000 in installation costs. The
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This document was uploaded on 01/19/2014.
- Fall '13