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13. An athleticwear company is considering releasing a new line of sneakers. The company believes that it will be able to sell 100,000 pairs
13. An athleticwear company is considering releasing a new line of sneakers. The company believes that it will be able to sell 100,000 pairs of sneakers each year, at a price of $110 per pair. Variable costs will be $22 for each pair of shoes, and there will be fixed costs of $3 million each year. To produce these sneakers, the company will have to expand its existing factory and warehouse space (a capital expenditure) which will cost $8 million right away and will be depreciated at 25% of this cost each year (i.e., there is a $2 million depreciation expenditure each year). What would be the cash flow from assets (i.e., the total free cash flow) that the firm would generate in the project's first year? A. -$2,884,000 B. $3,116,000 C. $4,756,000 D. $5,116,000 E. $5,251,000 Answer: D. 5,116,000 Shoes = 11000000 variable cost 2200000 fixed cost = 3000000 warehouse = 8000000 depreciation 2000000 are equi debt
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