Annual depreciation expense is expected to remain at

Assignment Help Finance Basics
Reference no: EM13576420

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 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 $150,000 over the next 5 years. Sales revenue, as shown in the income statement for 2003 (below), 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, 2004-2008. With the marketing 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.

Marcus Tube
Income Statement
for the Year Ended December 31, 2003

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 expense (10%)

$2,000,000

 

Depreciation expense

500,000

 

Total operating expense

 

2,500,000

Net profits before taxes

 

$1,500,000

Less: Taxes (rate = 40%)

 

600,000

Net profits after taxes

 

$900,000

 

Marcus Tube

Sales Forecast

Year

Sales revenue

2004

$20,500,000

2005

21,000,000

2006

21,500,000

2007

22,500,000

2008

23,500,000

Reference no: EM13576420

Questions Cloud

Dobbs corporation is considering purchasing a new delivery : dobbs corporation is considering purchasing a new delivery truck. the truck has many advantages over the companys
The store has no accounts receivable it accepts only cash : kids n caboodle a childrens clothing store had the following cash receipts and disbursements for its first year of
The following condensed income statements of the jackson : the following condensed income statements of the jackson holding company are presented for the two years ended december
How do you find cost per unit of finished product produced : how do you find cost per unit of finished product produced for a job when given direct labor cost direct materials used
Annual depreciation expense is expected to remain at : relevant cash flows for a marketing campaign marcus tube a manufacturer of high-quality aluminum tubing has maintained
Mars car company has a capital structure made up of 40 debt : mars car company has a capital structure made up of 40 debt and 60 equity and a tax rate of 30. a new issue of 1000 par
A continuous random variable measuring temperature of an : a continuous random variable measuring temperature of an object is known to have mean of 78 degrees celcius with
Someone owns a mutual fund that reinvests dividends and : someone owns a mutual fund that reinvests dividends and capital gains earned during the year. the mutual fund reported
A continuous random variable is normally distributed with : a continuous random variable is normally distributed with mean of 175 and standard deviation of 18. according to the

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd