The new Designer Shoes was expected to sell for $ 104 per unit and had projected sales of 4700 units in the first year, with a projected (Most-Likely scenario) 15.0 % growth rate per year for subsequent years. A total investment of $ 956,000 for new equipment was required. The equipment had fixed maintenance contracts of $ 280,612 per year with a salvage value of $ 123,174 and variable costs were 8 % of revenues. Balky also needed to consider both the Best-Case and Worst-Case scenarios in the analysis with growth rates of 25.00 % and 1.50 % respectively. The new equipment would be depreciated to zero using straight line depreciation. The new project required an increase in working capital of $ 128,520 and $ 21,848 of this increase would be offset with accounts payable.

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Economic life of project in years.	4
Price of New Equipment	$ 956,000.00
Change in NWC	$ 106,672.00
Fixed Costs
Variable Costs (% of Revenue)
Salvage value of New Equipment	$ 123,174.00
Marginal Tax Rate
First Year Unit Sales	4700
Sales Growth Rate	15.00%
Unit Sale Price	$ 104.00
First Year Revenue	$ 488,800.00

Market Value of Equity	$ 89,528,000.00
Market Value of Debt	$ 129,000,000.00
Total Market Value	$ 218,528,000.00
Weight of Equity	40.97%
Weight of Debt	59.03%
E(Rm)
Rf	3.0%
b	1.04
Cost of Equity (re)	3.30%
Cost of Debt (rd)	4.78%
After-Tax Cost of Debt	2.92%
WACC	3.07%

2 3 $ (956,000.00) $ $ 4700 104.00 488,800.00 Timeline: Year II. Net Investment Outlay - Initial CFs Price of Equipment Change in NWC III. Cash Flows from Operations Revenue Generation Unit Sales Unit Sale Price Revenues Costs Variable Costs Fixed Costs Depreciation Earnings Before Taxes Taxes Net Incom Depreciation Net operating CFS IV. Terminal Cash Flows Salvage Value Tax on Salvage Value Return of NWC V. Final Cash Flow Cash Flows Present Value of CFs NPV of Project