Question
Allison Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option
Allison 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 .3 $262,000 .3 $378,000
Moderate .3 $194,000 .3 $239,000
Low .4 $88,100 .4 0
The initial cost to expand the wool sweater line is $161,000. To enter the cashmere sweater line the initial cost in designs, inventory, and equipment is $136,000. |
(a) | Calculate Net present value. (Negative amounts should be indicated by a minus sign.) Net present value of Expand wool sweaters line? Net present value of Enter cashmere sweaters line? |
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