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The income statement for year 0 (the year which has just ended) and the balance sheet at the end of year 0 for Futura Limited are as follows:
Futura Limited is debating whether it should maintain the status quo or adopt a new strategy. If it maintains the status quo: The sales will remain constant at 10,000. The gross margin will remain at 20% and the selling, general, and administrative expenses will be 10% of sales. Depreciation charges will be equal to new investments. The asset turnover ratios will remain constant. The discount rate will be 15 percent. The income tax rate will be 30 percent. If Futura Limited adopts a new strategy, its sales will grow at a rate of 20 percent per year for three years. The margins, the turnover ratios, the capital structure, the income tax rate, and the discount rate, however, will remain unchanged. Depreciation charges will be equal to 10 percent of the net fixed assets at the beginning of the year. What value will the new strategy create?