Roche Brother is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $200,000 upon completion and a 5-year lease. The increase in rent for the addition is $10,000 per month. The annual sales projected through year 5 follows. The current effective capacity is equivalent to 500,000 customers per year. Assume a 2% pretax profit on salesYear12345Customers560,000600,000685,000700,000715,000Ave. Sales per Customer50.0053.0056.0060.0064.00If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion?If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative?Compute the NPV (net present value) for each alternative. Assume an 8% discount rate, which expansion alternative is better?Show breakdown of work

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Answered: If Roche expands its capacity to serve…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Roche Brother is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $200,000 upon completion and a 5-year lease. The increase in rent for the addition is $10,000 per month. The annual sales projected through year 5 follows. The current effective capacity is equivalent to 500,000 customers per year. Assume a 2% pretax profit on sales

Year	1	2	3	4	5
Customers	560,000	600,000	685,000	700,000	715,000
Ave. Sales per Customer	50.00	53.00	56.00	60.00	64.00

If Roche expands its capacity to serve 700,000 customer per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion?
If Roche expands its capacity to serve 700,000 customer per year at the end of year 2, the landowner will build the same addition for $240,000 and a 3-year lease at $12,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative?
Compute the NPV (net present value) for each alternative. Assume an 8% discount rate, which expansion alternative is better?
Show breakdown of work

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