Answer Happy

Problem 1 Sleep Tight Motel has the opportunity to purchase an adjacent plot of land. Building on this land would increase their capacity from the current sales level of $515,000/year to $600,000/year. Sleep Tight experiences a 20 percent before-tax profit margin. It wishes to estimate the additional before-tax profits that the expansion will produce. (This problem is to 1. practice finding "additional" cash flow for each period and 2. Consider capacity and demand in calculating additional cash flow. NPV calculations are not addressed.) (You can copy this table to Excel to make your calculations.) Capacity Requirement (Annual Sales) $515,000 $517,000 $520,000 $525,000 Year 1 2 3 4 5 6 7 8 9 10 $540,000 $560,000 $565,000 $575,000 $600,000 $620.000 1. How much more (additional) before-tax cash flow would be realized in year 6 alone due to this expansion? 2. Using the following information, how much more (additional) before-tax cash flow would be realized in year 10 alone due to this expansion? 3. Using the following information, how much more (additional) before-tax cash flow would be realized in the next 10 years due to this expansion?