Question
Wardrobe Clothing Manufacturers is preparing a strategy for the fall season. One strategy is to go to a highly imaginative, new, fourgoldbutton sports coat. The
Wardrobe Clothing Manufacturers is preparing a strategy for the fall season. One strategy is to go to a highly imaginative, new, fourgoldbutton sports coat. The allwool product would be available for males and females. A second option would be to produce a traditional blue blazer line. The marketing research department has determined that the fourgoldbutton and traditional blue blazer lines offer the following probabilities of outcomes and related cash flows:
New Coat | Blue Blazer | ||||||||||||
Expected sales | Probability | Present value of cash flow from sales | Probability | Present value of cash flow from sales | |||||||||
Fantastic | 0.5 | $221,000 | 0.3 | $341,000 | |||||||||
Moderate | 0.2 | 192,000 | 0.4 | 272,000 | |||||||||
Dismal | 0.3 | 88,600 | 0.3 | 0 | |||||||||
The initial cost to get into the new coat line is $142,000 in designs, equipment, and inventory. To enter the blue blazer line, the initial cost in designs, inventory, and equipment is $102,000.
a. Calculate Net present value. (Negative answers should be indicated by a minus sign.)
Net present value | |
Enter New Coat Market | $ |
Enter Blazer Market | $ |
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