Hudson Furniture specializes in office furniture for self-employed individuals who work at home. Hudsons furniture emphasizes style

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Hudson Furniture specializes in office furniture for self-employed individuals who work at home. Hudson’s furniture emphasizes style rather than utility and has been quite successful. The firm is now considering entering the more competitive industrial furniture market where volumes are higher but pricing is more competitive. A $10 million investment is required to enter the new market. Management anticipates positive cash flows of $1.7 million annually for eight years if Hudson enters the field. An average stock currently earns 8%, and the return on treasury bills is 4%. Hudson’s beta is .5, while that of an important competitor who operates solely in the industrial market is 1.5. Should Hudson consider entering the industrial furniture market?


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