Question
GlivCo operates a chain of stores and is considering the zippered glove project, which would involve selling zippered gloves for 1 year. The firm expects
GlivCo operates a chain of stores and is considering the zippered glove project, which would involve selling zippered gloves for 1 year. The firm expects sales of zippered gloves to be $278,000 and associated costs from metal, thread, etc. used to make zippered gloves to be $131,000. The firm believes that sales of zippered mittens, a type of mitten that is currently offered by the firm, would be $53,000 less with the addition of zippered gloves, and that costs associated with zippered mittens would be $31,000 less with the addition of zippered gloves. Finally, GlivCo believes that selling zippered gloves would increase traffic to its stores, which would increase expected sales of hats, scarves, and other items by $87,000 more than it would be without the addition of zippered gloves, and increase costs hats, scarves, and other items by $41,000 more than it would be without the addition of zippered gloves. What is the operating cash flow (OCF) for year 1 that GlivCo should use to analyze the zippered glove project? The tax rate is 25 percent and the cost of capital is 9.17 percent. Relevant depreciation is expected to be $19,000.
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