ANSWER Part B only

Roche Brothers is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $175,000 upon completion and a five-year lease. The increase in rent for the addition is $11,000 per month. The annual sales projected through year 5 follow. The current effective capacity is equivalent to 500,000 customers per year. Assume a 3 percent pretax profit on sales.

a. If Roche expands its capacity to serve700,000 customers per year now (end of year 0),

The projected annual incremental pretax cash flows attributable to this expansion in year 0 -$175000

The projected annual incremental pretax cash flows attributable to this expansion in year 1 -$57000

The projected annual incremental pretax cash flows attributable to this expansion in year 2 $42900

The projected annual incremental pretax cash flows attributable to this expansion in year 3 $172500

The projected annual incremental pretax cash flows attributable to this expansion in year 4 $240000

The projected annual incremental pretax cash flows attributable to this expansion in year 5 $252000

b. If Roche expands its capacity to serve 700,000 customers per year at the end of year 2, the landowner will build the same addition for $250,000 and a 3-year lease at $13,000 per month. What are the projected annual incremental pretax cash flows attributable to this expansion alternative?

The projected annual incremental pretax cash flows attributable to this expansion in year 2 are $

The projected annual incremental pretax cash flows attributable to this expansion in year 3 are $

The projected annual incremental pretax cash flows attributable to this expansion in year 4 are $

The projected annual incremental pretax cash flows attributable to this expansion in year 5 are $

i Year Customers Average Sales per Customer - 1 550.000 $50.00 2 610.000 $53.00 3 675,000 $58.00 4 700.000 $62.00 5 715.000 $64.00 i Year Customers Average Sales per Customer - 1 550.000 $50.00 2 610.000 $53.00 3 675,000 $58.00 4 700.000 $62.00 5 715.000 $64.00