Reference no: EM132404294

Allison's Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label products. The marketing department has determined that the wool and cashmere sweater lines offer the following probability of outcomes and related cash flows.

  Expand Wool

Sweaters Line

  Enter Cashmere

Sweaters Line

Expected Sales Probability Present Value

of Cash Flows

from Sales   Probability Present Value

of Cash Flows

from Sales Fantastic   0.5   $ 196,000       0.2   $ 389,000   Moderate   0.1     223,000       0.4     231,000   Low   0.4     92,100       0.4     0  

The initial cost to expand the wool sweater line is $132,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $100,000.

a. Calculate net present value if, Allison's Dresswear Manufacturers decides to

The net present value of

Expand wool sweaters line

Enter cashmere sweater line