Year Quarter Sales (per sq ft) Incremental Salaries 1 1 $90 $12,000 60 8,000 3 110 12,000 4 240 24,000 2 1 99 12,000 66 8,000 3 121 12,000 4 264 24,000 2. 2.
Arabelle is considering expanding the floor area of her high-
fashion import clothing store, The French Prints of Arabelle,
by increasing her leased space in the upscale Cherry Creek
Mall from 2,000 square feet to 3,000 square feet. The Cherry
Creek Mall boasts one of the country’s highest ratios of sales
value per square foot. Rents (including utilities, security,
and similar costs) are $110 per square foot per year. Salary
increases related to French Prints’ expansion are shown in
the following table, along with projections of sales per square
foot. The purchase cost of goods sold averages 70 percent of
the sales price. Sales are seasonal, with an important peak
during the year-end holiday season.a. If Arabelle expands French Prints at the end of year 0, what
will her quarterly pretax
b. Project the quarterly pretax cash flows assuming that the
sales pattern (10 percent annually compounded increase)
continues through year 3.
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