Allison's Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble ofwool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer labelproducts. The marketing department has determined that the wool and cashmere sweater lines offer the following probability ofoutcomes and related cash flows.Expand WoolSweaters LineExpected Sales ProbabilityFantasticModerateLow0.2Present Valueof Cash Flowsfrom Sales$226,000184,00093,300Expand wool sweaters lineEnter cashmere sweaters lineEnter CashmereSweaters LineProbability0.30.30.4The 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 ValuePresent Valueof Cash Flowsfrom Sales$366,000327,000a. Calculate net present value if, Allison's Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minussign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)< Prev07 of 8MacBook AirNext >R

It is a case where the net present values of the alternatives are calculated after adjusting the…

Answered: Allison's Dresswear Manufacturers is…

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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Compute the operating leverage factor of both plans at the anticipated demand of 6,000 units.
Divine Electronics Ltd. manufactures a line of headphones. Sales are increasing, and management is concerned that the company may not have sufficient capacity to meet the expected demand for the coming year. The following data are available for planning purposes: Product Estimated Demand Next Year Selling Price Direct Materials Direct Labour 1 Wire 78,000 $25.00 $7.30 $5.00 2 Wire 75,000 20.00 10.20 3.20 3 Wire 115,000 17.50 2.80 5.00 The following additional information is available: 1. With the strong competition, the company feels that it can't increase its selling prices above those indicated 2. The direct labour rate is $10 per hour; this rate is expected to remain unchanged during the coming year. 3. Fixed manufacturing costs total $640,000 per year. Variable manufacturing overhead costs are equal to 25% of the direct labour costs. 4. The company's plant has a capacity of 110,000 direct labour-hours per…
(Related to Checkpoint 13.4) (Using break-even analysis) Mayborn Enterprises, LLC runs a number of sporting goods businesses and is currently analyzing a new T-shirt printing business. Specifically, the company is evaluating the feasibility of this business based on its estimates of the unit sales, price per unit, variable cost per unit, and fixed costs. The company's initial estimates of annual sales and other critical variables are shown here: a. Calculate the accounting and cash break-even annual sales volume in units. b. Bill Mayborn is the grandson of the founder of the company and is currently enrolled in his junior year at the local state university. After reviewing the accounting break-even calculation done in part a, Bill wondered if the depreciation expense should be included in the calculation. Bill had just completed his first finance class and was well aware that depreciation is not an actual out-of-pocket expense but rather an allocation of the cost of the printing…
K Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $24 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 30% will come from customers who switch to the new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? b. Suppose that 40% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case? a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? The…
Berdwen, Inc. is analyzing the merits of a potential project. There is great volatility in the marketplace which will impact the project with risky free cash flows. Berdwen, Inc. has a weighted average cost of capital of 15.2%, and forecasts the free cash flows below: Year Expected FCF 0 -$10,000 1 $16,150 2 -$5,500 Use two appropriate capital budgeting techniques to determine if this project should be accepted.
A chain of take-away pizza stores is considering introducing a new line of gluten-free pizzas. Net revenue from the new line of pizzas is expected to total $500,000 per year, but 15% of this net revenue is forecast to consist of people switching from the regular pizzas to the gluten-free pizzas. How would you describe this situation in terms of the NPV analysis upon which the situation will be based. Question 1Answer a. There is a negative externality equal to $425,000 which should be included in the NPV analysis for the gluten-free pizza project. b. There is a positive externality equal to $425,000 which should be included in the NPV analysis for the gluten-free pizza project. c. There is a positive externality equal to $75,000 which should be included in the NPV analysis for the gluten-free pizza project. d. There is a negative externality equal to $75,000 which should be included in the NPV analysis for the gluten-free pizza project.
Risk and return to investment: a buyer for a department store must decide whih designs the stores will carry before he knows what the demand will be in the coming season. The designs, A and B, have the following probability of succeeding and their associate costs with failure. The cost of the initial investment is $30,000. Design A: probability of success (0.80), with a pay-off from success ($90,000), and cost from failure ($50,000). Design B: Probability of success (0.70), pay-off from success ($70,000), and cost from failure ($10,000) Which design should the department store choose based on the expected value of the net benefit? state the expected net return to the project and show work.
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