Walks softly inc sells customized shoes currently it

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43. Walks Softly, Inc. sells customized shoes. Currently, it sells 10,000 pairs of shoes annually at an average price of $68 a pair. It is considering adding a lower-priced line of shoes which sell for $49 a pair. Walks Softly estimates it can sell 5,000 pairs of the lower- priced shoes but will sell 1,000 less pairs of the higher-priced shoes by doing so. What is the amount of the sales that should be used when evaluating the addition of the lower-priced shoes? A. $177,000 B. $245,000 C. $313,000 D. $789,000 E. $857,000 Sales = (5,000 $49) - (1,000 $68) = $177,000 Difficulty level: Medium Topic: RELEVANT CASH FLOWS Type: PROBLEMS
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Chapter 06 - Making Capital Investment Decisions 6-18 44. Your firm purchased a warehouse for $335,000 six years ago. Four years ago, repairs were made to the building which cost $60,000. The annual taxes on the property are $20,000. The warehouse has a current book value of $268,000 and a market value of $295,000. The warehouse is totally paid for and solely owned by your firm. If the company decides to assign this warehouse to a new project, what value, if any, should be included in the initial cash flow of the project for this building? Opportunity cost = $295,000 Difficulty level: Easy Topic: OPPORTUNITY COST Type: PROBLEMS 45. You own a house that you rent for $1,200 a month. The maintenance expenses on the house average $200 a month. The house cost $89,000 when you purchased it several years ago. A recent appraisal on the house valued it at $210,000. The annual property taxes are $5,000. If you sell the house you will incur $20,000 in expenses. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office? Opportunity cost = $210,000 - $20,000 = $190,000 Difficulty level: Medium Topic: OPPORTUNITY COST Type: PROBLEMS
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Chapter 06 - Making Capital Investment Decisions 6-19 46. Big Joe's owns a manufacturing facility that is currently sitting idle. The facility is located on a piece of land that originally cost $129,000. The facility itself cost $650,000 to build. As of now, the book value of the land and the facility are $129,000 and $186,500, respectively. Big Joe's received an offer of $590,000 for the land and facility last week. The firm rejected this offer even though it was told that it is a reasonable offer in today's market. If Big Joe's were to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis? CF 0 = $590,000 Difficulty level: Easy Topic: OPPORTUNITY COST Type: PROBLEMS
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