Amount to use as annual sales figure when evaluating project

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Q1) Shoe-tek, Inc. is a leading manufacturer of running shoes. With the baby boomers getting older, they realized that there is a potential market in shoes specifically designed for walking rather than running. Market research suggests that the walking shoe market will be $100 million and Shoe-tek could capture 20 percent of this market because of its strong brand. However, it is estimated that 10 percent of Shoe-tek's current sales of running shoes are already being used by baby boomers for walking. If Shoe-tek introduces a walking shoe, half of these consumers would switch ferom Shoe-tek's running shoe to walking shoes. Shoe-tek has already spent $10 million on R&D for its running shoes and could leverage this and produce a totally new walking shoe for an additional $1 million in R&D. Shoe-tek would also need to construct an extension to their warehouse to accommodate the additional materials and inventory. This extension would cost $1 million. If annual revenues for Shoe-tek total $80 million, what is the amount to use as the annual sales figure when evaluating this project? Why?

Reference no: EM1339826

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