Allison's Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label products. The marketing department has determined that the wool and cashmere sweater lines offer the following probability of outcomes and related cash flows. Expand Wool Sweaters Line Expected Sales Probability 0.4 0.4 0.2 Fantastic Moderate Low Present Value of Cash Flows from Sales $226,000 184,000 93,300 Expand wool sweaters line Enter cashmere sweaters line Enter Cashmere Sweaters Line Probability 0.3 0.3 0.4 Present Value of Cash Flows from Sales $366,000 327,000 The initial cost to expand the wool sweater line is $155,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $173,000. Net Present Value 0 a. Calculate net present value if, Allison's Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)
Allison's Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label products. The marketing department has determined that the wool and cashmere sweater lines offer the following probability of outcomes and related cash flows. Expand Wool Sweaters Line Expected Sales Probability 0.4 0.4 0.2 Fantastic Moderate Low Present Value of Cash Flows from Sales $226,000 184,000 93,300 Expand wool sweaters line Enter cashmere sweaters line Enter Cashmere Sweaters Line Probability 0.3 0.3 0.4 Present Value of Cash Flows from Sales $366,000 327,000 The initial cost to expand the wool sweater line is $155,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $173,000. Net Present Value 0 a. Calculate net present value if, Allison's Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Allison's Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of
wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label
products. The marketing department has determined that the wool and cashmere sweater lines offer the following probability of
outcomes and related cash flows.
Expand Wool
Sweaters Line
Expected Sales Probability
Fantastic
Moderate
Low
0.2
Present Value
of Cash Flows
from Sales
$226,000
184,000
93,300
Expand wool sweaters line
Enter cashmere sweaters line
Enter Cashmere
Sweaters Line
Probability
0.3
0.3
0.4
The initial cost to expand the wool sweater line is $155,000. To enter the cashmere sweater line, the initial cost in designs, inventory,
and equipment is $173,000.
Net Present Value
Present Value
of Cash Flows
from Sales
$366,000
327,000
a. Calculate net present value if, Allison's Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minus
sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)
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