7) Richmond Hill Geese Inc. makes and sells top of the line winter jackets for $500. Variable costs are $240 per jacket and fixed costs are $800,000. They were expecting to sell 5,000 jackets again this year, the same as the last 4 years, however, they are considering making a better-quality jacket and raising the price by 20% to $600. This improvement would require extra advertising of $100,000 to a total (new) Fixed cost of $900,000. (Assume VC stays the same) Determine: (6 marks)

a) The profit they make selling 5,000 of the original jackets at $500 before any price or fixed costs changes. (2)

b) If they raise the price to $600 (and incur the new fixed costs), by how much can sales decrease (from part a) to make the same amount of profit as in part a. (3)

8) You won 3^rd Prize in the Lotto Max Lottery and were offered four (4) choices for your prize OR 4 different ways to receive your winnings! Option A is to receive $205,000 today and $313,000 in 3 years from today. Option B is to receive $251,000 today and end of monthly payments of $1,600 for 30 years. Option C is to receive $230,000 today and beginning of the month payments of $1,820 for 25 years. Option D is to receive $442,000 today. Using an interest rate of 10% compounded annually, discount the cash flows (DCF) and determine which option is the highest using this method. (8 marks)

a) What is DCF value of option A

b) What is the DCF value of option B

c) What is the DCF value of option C

d) What is the DCF value of option D

e) Which is highest and why?