MrGrant Is Considering a Capacity Expansion for His Store If Grant Expands His Capacity to $225,000 Now,what Would Be

question 79

Essay

Mr.Grant is considering a capacity expansion for his store.The annual sales projected for the next five years follow.The current capacity is equivalent to $200,000 sales.Assume a 20 percent pretax profit margin.
$$\begin{array} { | c | c | } \hline \text { Year } & \begin{array} { c } \text { Annual Sales } \\( \$ 000 )\end{array} \\\hline 1 & 180 \\2 & 210 \\3 & 220 \\4 & 230 \\5 & 260 \\\hline\end{array}$$
If Grant expands his capacity to $225,000 now,what would be the increase in his pretax cash flows for each of the next five years?

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Definitions:

Contributed Surplus

The excess amount paid by investors over the par value of shares, recorded in the shareholders' equity section of the balance sheet.

Retained Earnings

The amount of net earnings not distributed to shareholders as dividends but reinvested in the business or kept as reserves.

Accumulated Other Comprehensive Income

A component of shareholders' equity on the balance sheet, representing gains and losses not reflected in net income, such as foreign currency items, unrealized gains/losses on certain investments, and pension plan adjustments.

Retractable Preferred Shares

Preferred shares that give the holder the right to require the issuer to repurchase the shares at predetermined conditions.