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100038050_HW10

# 100038050_HW10 - Problem 14 Sale price VC Marketing Sale...

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Problem 14 Sale price 700 VC 320 Marketing 150,000 pairs per yr 55,000 for 7 yrs Sale loss 13,000 pairs per yr of high-priced shoes Sale price 1,100 Sale increase 10,000 pairs per yr of cheap shoes Sale price 400 FC 7,500,000 R&D 1,000,000 Plant & Equip 18,200,000 straight line depreciation NWC 950,000 returned at the end of the project Tax rate 0.4 Cost of capital 0.14 Payback, NPV, IRR? Solution Tennis shoes High-priced shoes Year 0 Years 1-7 Year 7 Years 1-7 Sales \$28,200,000.00 \$(14,300,000.00) Variable costs \$11,600,000.00 \$(7,800,000.00) Fixed costs \$7,500,000.00 Depreciation \$2,600,000.00 EBT \$6,500,000.00 Tax \$2,600,000.00 Net income \$3,900,000.00 OCF \$6,500,000.00 NWC \$(950,000.00) \$950,000.00 NPV = \$9,103,636.91 Payback period 2.946 years IRR = 28.24 Calculation: \$1.44 Problem 15 Variable Pessimistic Expected or Best Optimistic Sales 49,500 55,000 60,500 Price 630 700 770 VC 352 320 288 Fixed costs 8,250,000 7,500,000 6,750,000 Sales lost 14,300 13,000 11,700 Sales gained 9,000 10,000 11,000 Sales \$19,055,000.00 \$28,200,000.00 \$38,115,000.00 Variable costs \$10,464,000.00 \$11,600,000.00 \$12,384,000.00 Fixed cost \$8,250,000.00 \$7,500,000.00 \$6,750,000.00 Depreciation \$2,600,000.00

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100038050_HW10 - Problem 14 Sale price VC Marketing Sale...

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