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* * PLEASE SHOW EXCEL WORK - NEED TO SEE HOW THE FORMULAS AS WELL. TY * * The business case team had compiled the
PLEASE SHOW EXCEL WORK NEED TO SEE HOW THE FORMULAS
AS WELL. TYThe business case team had compiled the following baseline
information surrounding the Sneaker project:The life of the Sneaker project was expected to be six
years. Assume the analysis took place at the end of The suggested retail price of the shoe was $ Gross margins
for highend athletic footwear averaged about at the retail
level, meaning each pair sold would net New Balance $The global athletic footwear marketing totaled
approximately $ billion and was expected to grow at a CAGR of
from to reaching $ billion by Based on
market research and analysis of other recent athlete endorsements,
the New Balance marketing division estimated the following sales
volumes for Sneaker :
Year:
Pairs sold millions
The number assumed Kirani James participated in the
games in Rio de Janeiro, Brazil, and won at least one medalFor the first two years, the introduction of Sneaker
would reduce gross profit of existing New Balance shoes as
follows:Lost
sales::
$
million
: $ millionAssume the lost revenue had the same margins as Sneaker
In order to produce the shoe, the firm needed to build a
factory in Vietnam. This required an immediate outlay of $
million, to be depreciated on a year MACRSbasis. Depreciation
percentages for the first six years respectively were:
and The firms analysts estimated the
building would be sold for $ million at project termination.
This salvage value has not been taken into consideration when
computing annual depreciation chargesThe company must immediately purchase equipment costing $
million. Freight and installation of the equipment would cost $
million. The cost of equipment and freightinstallation was to be
depreciated on a fiveyear MACRS basis. Depreciation percentages
for the six years respectively were: and
It was believed the equipment could be sold for $ million upon
project terminationIn order to manufacture Sneaker two of the firms
working capital accounts were expected to increase immediately.
Approximately $ million of inventory would be needed quickly to
fill the supply chain, and accounts payable were expected to
increase by $ million. By the end of the accounts receivable
balance would be of project net revenue; the inventory balance
would be of the projects variable costs; and accounts payable
would be of the projects variable costs. All working capital
would be recovered at the end of the project by the end of the
sixth yearVariable costs were expected to be of net revenueSelling, general, and administrative expenses were expected to
be $ million per yearKirani James would be paid $ million per year for his
endorsement of Sneaker withan additional $ million Olympic
bonus in Other advertising and promotion costs were estimated as
follows:
Year
A&P Expense millions
$ $
$ $
$ $New Balance had already spent $ million in research and
development on Sneaker The Sneaker project was to be financed using a
combination of equity and debt. The interest costs on the debt were
expected to be approximately $ million per year. The New Balance
discount rate for new projects such as this was New Balances effective tax rate was Question: Produce a projected capital budgeting cash
flow statement for the Sneaker project by answering the
following:a What is the projects initial year investment outlay?b What are the projects annual years net operating
cash flows?c What is the projects terminal nonoperating net cash
flow?d Does Sneaker appear viable from a quantitative
standpoint? To answer this question, estimate the projects payback,
NPV and internal rate of return.
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