# 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
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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