Problem 1 Sleep Tight Motel has the opportunity to purchase an adjacent plot of land. Building on this land would increa

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Problem 1
Sleep Tight Motel has the opportunity to purchase an adjacentplot of land. Building on this land would increase their capacityfrom the current sales level of $515,000/year to $600,000/year.Sleep Tight experiences a 20 percent before-tax profit margin. Itwishes to estimate the additional before-tax profits that theexpansion will produce.
(This problem is to 1. practice finding “additional”cash flow for each period and 2. Consider capacity and demand incalculating additional cash flow. NPV calculations are notaddressed.)
(You can copy this table to Excel to make yourcalculations.)
Year
Capacity Requirement (Annual Sales)
1
$515,000
2
$517,000
3
$520,000
4
$525,000
5
$540,000
6
$560,000
7
$565,000
8
$575,000
9
$600,000
10
$620,000
2. Using the following information, how much more (additional)before-tax cash flow would be realized in year 10 alone due to thisexpansion?