Thprehensive problem $-$ Show AND clearly label all work for partial credit $(63$ points$)$

per pair. The company spent $$18$ a new line of shoes that will have a selling price of $$100$ and a variable cost of $$55$ per year for five years. The marketing for a marketing study that determined the company could sell $180,000$ pairs high$-$priced shoes that sell for $$150$ study also determined that the company will lose sales of $28,000$ pairs of its inexpensive shoes by $40,000$ periable costs of $$90$ a pair. The company will also increase sales of its costs each year will be $$2,840.$ The inexpensive shoes sell for $$80$ and have variable costs of $$35$ per pair. The fixed new shoes. The plant and over eight years. The plant equipment required will cost $$18,600,000$ and will be depreciated on a straight$-$line basis also require an increase sold for $$4\mathrm{.}5$ million at the end of the project. The new shoes will be returned at the end capital of $$647,000,$ upfront, and an additional $$10,000$ per year that will all of the project. The tax rate is $21$ percent.

The company has $30,000$ shares of common stock outstanding, but the current market price is unknown. The company has provided information about dividends to help you calculate current market price $($see next paragraph$).$ The company also has a bond issue outstanding with a total face value of $$300,000$ which is selling for $86$ percent of par. The bond will mature in $5$ years and pays semi$-$annual interest. The coupon rate on the bond is $6\%.$ The company uses the SML$/$CAPM approach of estimating the cost of equity. The expected return on the market is $7\%$ and the risk$-$free rate is $2\mathrm{.}1\%.$ The firm has a beta of $1\mathrm{.}48.$ The new line of shoes is considered slightly riskier than current operations so the company has decided upon an adjustment factor for cost of capital of $1\mathrm{.}5\%$ when evaluating the project.

The Shoe Store board of directors announced that they will begin paying annual dividends next year. Dividends for the first three years will be $$1,$$$1\mathrm{.}35,$ and $$1\mathrm{.}70$ a share, respectively. After that, dividends are projected to increase by $4$ percent per year indefinitely. The required return that the company has recommended to calculate the price of the stock is $14\%.$

The company has enough cash to fund the investment in NWC$,$ but does not have the cash to fund the plant and equipment. Thus, the company has hired underwriters to assist with raising capital necessary for the project. The underwriters charge a flotation cost for new equity of $9\mathrm{.}9\%,$ but the floatation cost for debt is only $4\mathrm{.}3\%.$

Should management of The Shoe Store introduce the new line of shoes? Management is particularly interested in the NPV$,$ payback period, IRR, and profitability index. Show all work for partial credit. Extra paper available upon request. Round to one or two decimal places when needed $($show all work as neatly as possible for partial credit$).$