Question
Jasmines Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option
Jasmines 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:
Expected Sales | Expand Wool Sweaters Line | Enter Cashmere Sweaters Line | ||
---|---|---|---|---|
Probability | Present Value of Cash Flows from Sales | Probability | Present Value of Cash Flows from Sales | |
Fantastic | 0.5 | $ 221,000 | 0.3 | $ 341,000 |
Moderate | 0.2 | 192,000 | 0.4 | 272,000 |
Low | 0.3 | 88,600 | 0.3 | 0 |
The initial cost to expand the wool sweater line is $142,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $102,000.
Calculate net present value if, Jasmines Dresswear Manufacturers decides to:
Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started