E-13-8

Allisons 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 SalesProbabilityPresent Value

of Cash Flows

from SalesProbabilityPresent Value

of Cash Flows

from SalesFantastic.2$206,000.4$389,000Moderate.5180,000.3277,000Low.394,300.30

The initial cost to expand the wool sweater line is $165,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $159,000.

a.Calculate net present value if, Allisons Dresswear Manufacturers decides to:(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)

Net Present Value

Expand wool sweaters line=

Enter cashmere sweaters line=