As the CEO of a western wear manufacturing company called Over Y'alls. Your marketing department hascome up with two potential work boots which you believe will only have a large enough demand to maintainmarket for five years (before the style gets old). You believe that the adoption of one of those two productswill not affect the viability of the other product.You estimate that Style 1 will cost $45,545 up front to set up, whereas Style 2 will cost $53,416 up front. Theexpected cash flows from those two boot designs over the life of the boots can be found in the table below.Both projects have similar risks to current projects at Over Y'Alls, therefore the appropriate discount rate forboth projects should be our current WACC of 7.51%.Calculate the net present value of both projects, and enter in the box below how much the value of the firm isexpected to increase based on this capital budget (please enter the amount to the nearest penny).Year 1Year 2Year 3Year 4Year 5Style 1$19,887$18,576$11.376$9,038$7,711Style 2$18,190$17,214$11,561$10,984$6,825

NPV refers to the net present value of the project or capital investment which can be determined by…

Answered: As the CEO of a western wear…

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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. Mr. Mohammed is the Marketing director of Hilti Division in Bin Salim Enterprise in Sultanate of Oman. Presently he is working on a special marketing campaign. He has given a new idea that we should increase the display space and also install new security system. This will increase $25,500 in fixed cost, which is presently $202,500. In addition, Mr. Mohammed is proposing that a 5% decrease in price ($30 to $28.50) will produce a 20% increase in sales volume. Present sales volume is 20,000 units and sales price is $30 per unit. Variable cost will remain at $16.50 per unit. Required: a) Calculate the current break-even point in units and compare it to the break-even point in units if Mr. Mohammed’s idea is accepted. b) Prepare CVP income statement for the current operations and after Mr. Mohammed’s changes are introduced.
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11) Istanbul Company currently sells cellphones for $500. It has costs of $320. A competitor is bringing a new cell phone to market that will sell for $430. Management believes it must lower the price to $430 to compete in the market for cell phones. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Istanbul Company sales are currently 100,000 cell phones per year. What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)? A) $224.00 B) $238.18 C) $266.38 D) $290.00 E) $311.00
FAE Technologies is deciding whether it should begin production of a new toy robot. It has manufactured children’s toys before but nothing as advanced as its latest robot so historical data is at a minimum. The company believes that they can secure the materials for manufacture for between $65-85 per unit and labor costs would be between $15-25 per unit. Management’s expectations are that materials will cost $70 per unit and labor $25 per unit and that 800 units will be sold monthly. Should FAE decide to manufacture the robots in-house, maintenance of the factory machine would cost $15,000 per month. However, management has found that another alternative is for the company to outsource the labor for a flat rate of $35 per unit. The company expects to sell between 750-1000 units per month initially at a price of $149. Provide recommendations for FAE technologies that will maximize profit. Also include base, worst, and best case scenario calculations and provide a scenario summary. Be…
Mesa Cheese Company has developed a new cheese slicer called Slim Slicer. The company plans to sell this slicer through its online website. Given market research, Mesa believes that it can charge $20 for the Slim Slicer. Prototypes of the Slim Slicer, however, are costing $22. By using cheaper materials and gaining efficiencies in mass production, Mesa believes it can reduce Slim Slicer's cost substantially. Mesa wishes to earn a return of 40% of the selling price. (b) When is target costing particularly helpful in deciding whether to produce a given product?
29) Foamsoft sells customized boat shoes. Currently, it sells 16,850 pairs of shoes annually at an average price of $75 a pair. It is considering adding a lower-priced line of shoes which sell for $59 a pair. Foamsoft estimates it can sell 4,500 pairs of the lower-priced shoes but will sell 1,100 fewer pairs of the higher-priced shoes by doing so. What is the estimated value of the erosion cost that should be charged to the lower-priced shoe project?
McGilla Golf has decided to sell a new line of golf clubs and would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $810 per set and have a variable cost of $410 per set. The company has spent $151,000 for a marketing study that determined the company will sell 55,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,600 sets of its high-priced clubs. The high-priced clubs sell at $1,110 and have variable costs of $710. The company will also increase sales of its cheap clubs by 11,100 sets. The cheap clubs sell for $450 and have variable costs of $235 per set. The fixed costs each year will be $9,110,000. The company has also spent $1,120,000 on research and development for the new clubs. The plant and equipment required will cost $28,770,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net…

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