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BASE CASE OPTIMISTIC CASE PESSIMISTIC Product being produced Target Market Primary Sales Channel JACKETS Dallas/Ft Worth SAME AS BASE SAME AS BASE SAME AS BASE SAME AS BASE Retail Outlets / Malls SAME AS BASE SAME AS BASE Online Presence yes SAME AS BASE SAME AS BASE Price of the product (year 1) $18.35 SAME AS BASE 3.1% SAME AS BASE SAME AS BASE SAME AS BASE Annual growth rate on price Number of items sold (year 1) Annual growth rate on units sold Variable cost per unit Variable cost increase each year Fixed Costs Fixed costs increasing each year Depreciation Method (all CAPEX) Depreciation period (all CAPEX) Tax rate Initital Working Capital Add'tnl Working Capital One time (year 4) Initial Investmnet for Equipment (year 0) Suplemental Capital Required (year 3) Market Vale of All Equipment Year 10 Risk Free Rate (rfr) Beta (b) S&P 500 Avg Return (MR) Cost on Debt Tax Shield Eligible % of Equity in Cap Structure % of Debt in Cap Structure 438000 2.75% $5.75 4.25% $3,560,000 $522,000 490000 SAME AS BASE $4.90 SAME AS BASE $3,275,000 375000 SAME AS BASE $6.10 SAME AS BASE $4,100,000 SAME AS BASE $150,000 $8,900,000 $8,575,000 $1,500,000 $2,000,000 SAME AS BASE 3.25% SAME AS BASE straight line SAME AS BASE SAME AS BASE 5 years SAME AS BASE 21% SAME AS BASE $475,000 SAME AS BASE SAME AS BASE SAME AS BASE $615,000 SAME AS BASE $9,800,000 SAME AS BASE SAME AS BASE SAME AS BASE 3.50% SAME AS BASE SAME AS BASE 1.12 SAME AS BASE SAME AS BASE 12% SAME AS BASE SAME AS BASE 6% SAME AS BASE SAME AS BASE Yes SAME AS BASE SAME AS BASE 75% SAME AS BASE SAME AS BASE 25% SAME AS BASE SAME AS BASE

BASE CASE OPTIMISTIC CASE PESSIMISTIC Product being produced Target Market Primary Sales Channel JACKETS Dallas/Ft Worth SAME AS BASE SAME AS BASE SAME AS BASE SAME AS BASE Retail Outlets / Malls SAME AS BASE SAME AS BASE Online Presence yes SAME AS BASE SAME AS BASE Price of the product (year 1) $18.35 SAME AS BASE 3.1% SAME AS BASE SAME AS BASE SAME AS BASE Annual growth rate on price Number of items sold (year 1) Annual growth rate on units sold Variable cost per unit Variable cost increase each year Fixed Costs Fixed costs increasing each year Depreciation Method (all CAPEX) Depreciation period (all CAPEX) Tax rate Initital Working Capital Add'tnl Working Capital One time (year 4) Initial Investmnet for Equipment (year 0) Suplemental Capital Required (year 3) Market Vale of All Equipment Year 10 Risk Free Rate (rfr) Beta (b) S&P 500 Avg Return (MR) Cost on Debt Tax Shield Eligible % of Equity in Cap Structure % of Debt in Cap Structure 438000 2.75% $5.75 4.25% $3,560,000 $522,000 490000 SAME AS BASE $4.90 SAME AS BASE $3,275,000 375000 SAME AS BASE $6.10 SAME AS BASE $4,100,000 SAME AS BASE $150,000 $8,900,000 $8,575,000 $1,500,000 $2,000,000 SAME AS BASE 3.25% SAME AS BASE straight line SAME AS BASE SAME AS BASE 5 years SAME AS BASE 21% SAME AS BASE $475,000 SAME AS BASE SAME AS BASE SAME AS BASE $615,000 SAME AS BASE $9,800,000 SAME AS BASE SAME AS BASE SAME AS BASE 3.50% SAME AS BASE SAME AS BASE 1.12 SAME AS BASE SAME AS BASE 12% SAME AS BASE SAME AS BASE 6% SAME AS BASE SAME AS BASE Yes SAME AS BASE SAME AS BASE 75% SAME AS BASE SAME AS BASE 25% SAME AS BASE SAME AS BASE

Essentials Of Investments
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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Instructions: The fifth assignment is a detailed capital budgeting analysis of a clothing company opportunity. The company wants to launch a new clothing product line by investing approximately $9 million into the product line with homes of selling millions of items over the next decade. It wants your team to evaluate whether this is a wise business decision or not based on a thorough 10 -year projection discounted cash flow analysis. Here is what you need to do:.

BASE CASE OPTIMISTIC CASE PESSIMISTIC Product being produced Target Market Primary Sales Channel JACKETS Dallas/Ft Worth SAME AS BASE SAME AS BASE SAME AS BASE SAME AS BASE Retail Outlets / Malls SAME AS BASE SAME AS BASE Online Presence yes SAME AS BASE SAME AS BASE Price of the product (year 1) $18.35 SAME AS BASE 3.1% SAME AS BASE SAME AS BASE SAME AS BASE Annual growth rate on price Number of items sold (year 1) Annual growth rate on units sold Variable cost per unit Variable cost increase each year Fixed Costs Fixed costs increasing each year Depreciation Method (all CAPEX) Depreciation period (all CAPEX) Tax rate Initital Working Capital Add'tnl Working Capital One time (year 4) Initial Investmnet for Equipment (year 0) Suplemental Capital Required (year 3) Market Vale of All Equipment Year 10 Risk Free Rate (rfr) Beta (b) S&P 500 Avg Return (MR) Cost on Debt Tax Shield Eligible % of Equity in Cap Structure % of Debt in Cap Structure 438000 2.75% $5.75 4.25% $3,560,000 $522,000 490000 SAME AS BASE $4.90 SAME AS BASE $3,275,000 375000 SAME AS BASE $6.10 SAME AS BASE $4,100,000 SAME AS BASE $150,000 $8,900,000 $8,575,000 $1,500,000 $2,000,000 SAME AS BASE 3.25% SAME AS BASE straight line SAME AS BASE SAME AS BASE 5 years SAME AS BASE 21% SAME AS BASE $475,000 SAME AS BASE SAME AS BASE SAME AS BASE $615,000 SAME AS BASE $9,800,000 SAME AS BASE SAME AS BASE SAME AS BASE 3.50% SAME AS BASE SAME AS BASE 1.12 SAME AS BASE SAME AS BASE 12% SAME AS BASE SAME AS BASE 6% SAME AS BASE SAME AS BASE Yes SAME AS BASE SAME AS BASE 75% SAME AS BASE SAME AS BASE 25% SAME AS BASE SAME AS BASE
Transcribed Image Text:BASE CASE OPTIMISTIC CASE PESSIMISTIC Product being produced Target Market Primary Sales Channel JACKETS Dallas/Ft Worth SAME AS BASE SAME AS BASE SAME AS BASE SAME AS BASE Retail Outlets / Malls SAME AS BASE SAME AS BASE Online Presence yes SAME AS BASE SAME AS BASE Price of the product (year 1) $18.35 SAME AS BASE 3.1% SAME AS BASE SAME AS BASE SAME AS BASE Annual growth rate on price Number of items sold (year 1) Annual growth rate on units sold Variable cost per unit Variable cost increase each year Fixed Costs Fixed costs increasing each year Depreciation Method (all CAPEX) Depreciation period (all CAPEX) Tax rate Initital Working Capital Add'tnl Working Capital One time (year 4) Initial Investmnet for Equipment (year 0) Suplemental Capital Required (year 3) Market Vale of All Equipment Year 10 Risk Free Rate (rfr) Beta (b) S&P 500 Avg Return (MR) Cost on Debt Tax Shield Eligible % of Equity in Cap Structure % of Debt in Cap Structure 438000 2.75% $5.75 4.25% $3,560,000 $522,000 490000 SAME AS BASE $4.90 SAME AS BASE $3,275,000 375000 SAME AS BASE $6.10 SAME AS BASE $4,100,000 SAME AS BASE $150,000 $8,900,000 $8,575,000 $1,500,000 $2,000,000 SAME AS BASE 3.25% SAME AS BASE straight line SAME AS BASE SAME AS BASE 5 years SAME AS BASE 21% SAME AS BASE $475,000 SAME AS BASE SAME AS BASE SAME AS BASE $615,000 SAME AS BASE $9,800,000 SAME AS BASE SAME AS BASE SAME AS BASE 3.50% SAME AS BASE SAME AS BASE 1.12 SAME AS BASE SAME AS BASE 12% SAME AS BASE SAME AS BASE 6% SAME AS BASE SAME AS BASE Yes SAME AS BASE SAME AS BASE 75% SAME AS BASE SAME AS BASE 25% SAME AS BASE SAME AS BASE
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