Shoe store has decided to sell new line of shoes

Assignment Help Financial Management
Reference no: EM13913812

The Shoe Store has decided to sell a new line of shoes that will have a selling price of $79 and a variable cost of $38 per pair. The company spent $187,000 for a marketing study that determined the company should sell 112,000 pairs per year for five years. The marketing study also determined that the company will lose sales of 28,000 pairs of its high-priced shoes that sell for $109 and have variable costs of $54 a pair. The company will also increase sales of its in expensiveshoes by 39,000pairs. The inexpensive shoes sell for $39 and have variable costs of $24 per pair. The fixed costs each year will be $2.84 million. The company has also spent $1.29 million on research and development for the new shoes. The plant and equipment required will cost $18.6 million and will be depreciated on a straight-line basis over the life of the project. The new shoes will also require an increase in net working capital of $847,000 that will be returned at the end of the project. The tax rate is 34 percent, and the cost of capital is 12 percent. What is the IRR for the new line of shoes?

A. -18.33%

B. 17.82%

C. 16.11%

D. -13.49%

E. 16.62%

Reference no: EM13913812

Questions Cloud

Discuss the potential role of packaging in innovation : Consider the brands of a company that has a large brand portfolio and identify specific brands that function in three of the four roles that brands may play within that portfolio: high-end prestige brands, low-end entry level brands, cash cows and..
Economy suffered a significant decline just year prior : Because the economy suffered a significant decline just a year prior, there was uncertainty about the economy in general, and, very much affected by the economy, the demand for shipping and containers. Since he has not dealt with uncertainty regardin..
Activities as a use of fund : In investing activities as a source of funds-In investing activities as a use of funds.
Inadvertent termination : What is an inadvertent termination of an S election? How does an S corporation and its shareholders rectify an inadvertent termination? What could happen if a company fails to rectify the termination?
Shoe store has decided to sell new line of shoes : The Shoe Store has decided to sell a new line of shoes that will have a selling price of $79 and a variable cost of $38 per pair. The company spent $187,000 for a marketing study that determined the company should sell 112,000 pairs per year for five..
Annual summary and transmittal of u.s. information returns : Payments of at least $600 to independent contractorsAnnual nondeductible contributions of up to $5,000Annual summary and transmittal of U.S. information returns
Firm is operating at accounting break-even level of output : Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?
The state unemployment rate for wonder man : During 2013, Jake Gore worked for two different employers. Until May, he worked for Wonder man Construction Company in Kansas City, Kansas, and earned $21,500.
Explain what are brand equity, brand associations : Explain what are brand equity, brand associations, and their dimensions, using theories and references of brand marketing, having 'some' explanations using APPLE as a company

Reviews

Write a Review

 

Financial Management Questions & Answers

  Batting average and earned run average

The number of victories (W), earned run average (ERA), runs scored (R), batting average (AVG), and on- base percentage (OBP) for each team in the American League in the 2012 season are provided in the following table. The ERA is one measure of the ef..

  Determine the future values

Determine the future values $5,000 is invested in each of the following situations:

  What is your annualized holding period return

You purchased 250 shares of General Motors stock at a price of $72.74 two years ago. You sold all stocks today for $88.44. During this period the stock paid dividends of $4.20 per share. What is your annualized holding period return (annual percentag..

  An increase in capital per worker-technological progress

An increase in capital per worker will: Technological progress will: If technology advances, then:

  Compound interest with no annual periods

Compound interest with no annual periods- Calculate the future sum of $3,000, given that it will be held in the bank 7 years at an annual interest rate of 5 percent. Recalculate part (A) using compounding periods that are (1) semi-annual and (2) bimo..

  What is net investment income tax liability

Allen Green is a single taxpayer with an AGI (and modified AGI) of $210,000, which includes $170,000 of salary, $25,000 of interest income, $10,000 of dividends, and $5,000 of long-term capital gains. What is Allen's Net Investment Income tax liabili..

  BEA is considering change in capital structure

Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. What is BEA's unlevered be..

  Considering new three-year expansion project

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,110,000 in annual sale..

  Changes in the exchange rate

Early in September 1983, it took 255 Japanese yen to equal $1. Nearly 28 years later, in August 2011, that exchange rate had fallen to 125 yen to $1. Has the price, in dollars, of the automobile increased or decreased during the 28-year period becaus..

  New divisor for the price-weighted index

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $57, $315, and $114, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index?

  Calculate the equivalent annual operating cost of machine

The operating cost of a new machine is $500 for the first year. Starting the second year, the operating cost increases by $200 per year for the next 10 years. Calculate the equivalent annual operating cost of the machine. What will be the present and..

  What is nominal interest rate on four-year government bond

Assume you are at the beginning of 2001. The real risk-free rate of interest is 3 percent and expected to remain constant. Inflation is expected to be 2 percent, 3 percent, 4 percent, and 5 percent in years 2001, 2002, 2003, and 2004, respectively. T..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd