Case 2, Team 6.docx - Case 2 Team 6 Mark Anderson Jake...

Case 2, Team 6: Mark Anderson, Jake McDonough, Cody Rossman, Chase Wietfeld
1) Which of the following be included in Sneaker 2013’s capital budgeting cash flow projection?
Why or why not?
A. Building a factory and purchase/installation of the equipment: Yes, because this expense is
directly related to the development of the shoe.
B. Research and development costs: No, because this is a sunk cost.
C. Cannibalization of other sneaker sales: Yes because sales will go down in older shoes and
the variable cost will begin to lower when we slow down production of this shoe.
D. Interest costs: No because it is a consequence of capital structure and included in the
WACC.
E. Changes in current asset/current liabilities accounts: Yes, because this change will directly
affect the cash flows.
F. Taxes: Yes because we can’t avoid paying them, so this is another sunk cost.
G. Cost of goods sold: Yes because this is directly related to the shoe.
H. Advertising and promotion expenses: Yes, because this is a direct expense of the product.
I. Depreciation charges: Not included to show less income, but added back after taxes are taken
out.