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Q402 Fall 12

- The company spent $20,000 on advertising in year 1, which increased sales by $15,000 in years 1 and 2 before returning to original levels in year 3. - This sales increase resulted in increased accounts receivable of $7,000, which also returned to previous levels in year 3. - The company faces a 40% tax rate and 5% minimum acceptable rate of return (MARR).

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118 views2 pages

Q402 Fall 12

- The company spent $20,000 on advertising in year 1, which increased sales by $15,000 in years 1 and 2 before returning to original levels in year 3. - This sales increase resulted in increased accounts receivable of $7,000, which also returned to previous levels in year 3. - The company faces a 40% tax rate and 5% minimum acceptable rate of return (MARR).

Uploaded by

Jamie Woods
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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EC 314: Public and Private Investment Fall 2012 Q4: Income Cash Flow #2

PASS Name:

NO PASS

You took out some advertisement in year one at a cost of $20,000. The advertisement increased sales by $15,000 in years one and two before returned to the original levels in year three. The increase in sales meant in increase in average accounts receivable by $7,000. Average accounts receivable returned to previous levels in year three. Your rm faces a combined tax rate of 40.00% and a MARR of 5.00%.
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 3 Year 33.33 44.45 14.81 7.41 5 Year 20.00 32.00 19.20 11.52 11.52 5.76 7 Year 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 10 Year 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 15 Year 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95

Income Statement Year 1 Year 2 Year 3 Year 4 Operating Revenue Operating Expenses Interest Depreciation Taxable Income Tax Net Income Cash Flow Operations Net Income Depreciation Investments Working Capital Gains Tax Finance Net Cash Flow 1. Fill in the Income and Cash Flow Statement above. 2. Is this a good investment?

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