Allison's 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. Expand Wool Sweaters Line Expected Sales Probability 0.4 0.4 0.2 Fantastic Moderate Low Present Value of Cash Flows from Sales $226,000 184,000 93,300 Expand wool sweaters line Enter cashmere sweaters line Enter Cashmere Sweaters Line Probability 0.3 0.3 0.4 Present Value of Cash Flows from Sales $366,000 327,000 The initial cost to expand the wool sweater line is $155,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $173,000. Net Present Value 0 a. Calculate net present value if, Allison's Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)

Allison's 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. Expand Wool Sweaters Line Expected Sales Probability 0.4 0.4 0.2 Fantastic Moderate Low Present Value of Cash Flows from Sales $226,000 184,000 93,300 Expand wool sweaters line Enter cashmere sweaters line Enter Cashmere Sweaters Line Probability 0.3 0.3 0.4 Present Value of Cash Flows from Sales $366,000 327,000 The initial cost to expand the wool sweater line is $155,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $173,000. Net Present Value 0 a. Calculate net present value if, Allison's Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter12: Integer Linear Optimization_models

Section: Chapter Questions

Problem 3P: Spencer Enterprises is attempting to choose among a series of new investment alternatives. The...

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Spencer Enterprises is attempting to choose among a series of new investment alternatives. The potential investment alternatives, the net present value of the future stream of returns, the capital requirements, and the available capital funds over the next three years are summarized as follows: Develop and solve an integer programming model for maximizing the net present value. Assume that only one of the warehouse expansion projects can be implemented. Modify your model from part (a). Suppose that if test marketing of the new product is carried out, the advertising campaign also must be conducted. Modify your formulation from part (b) to reflect this new situation.
The J.R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The companys president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.20, 0.50, and 0.30, respectively. Letting x and y indicate the annual profit in thousands of dollars, the firms planners developed the following profit forecasts for the medium-and large-scale expansion projects. a. Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? b. Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?
Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: What is the decision to be made, and what is the chance event for Southland’s problem? Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.
The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is considering the use of simple (single-driver) and multiple regression analyses to forecast annual sales because previous forecasts have been inaccurate. The new sales forecast will be used to initiate the budgeting process and to identify more completely the underlying process that generates sales. Larry Husky, the controller of Lockit, has considered many possible independent variables and equations to predict sales and has narrowed his choices to four equations. Husky used annual observations from 20 prior years to estimate each of the four equations. Following are definitions of the variables used in the four equations and a statistical summary of these equations: St=ForecastedsalesindollarsforLockitinperiodtSt1=ActualsalesindollarsforLockitinperiodt1Gt=ForecastedU.S.grossdomesticproductinperiodtGt1=ActualU.S.grossdomesticproductinperiodt1Nt1=Lockitsnetincomeinperiodt1 Required: 1. Write Equations 2 and 4 in the form Y = a + bx. 2. If actual sales are 1,500,000 in the current year, what would be the forecasted sales for Lockit in the coming year? 3. Explain why Larry Husky might prefer Equation 3 to Equation 2. 4. Explain the advantages and disadvantages of using Equation 4 to forecast sales.
A sports nutrition company is examining whether a new high-performance sports drink should be added to its product line. A preliminary feasibility analysis indicated that the company would need to invest $1 7.5 million in a new manufacturing facility to produce and package the product. A financial analysis using sales and cost data supplied by marketing and production personnel indicated that the net cash flow (cash inflows minus cash outflows) would be $6.1 million in the first year of commercialization, $7.4 million in year 2, $7 .0 million in year 3, and $ 5. 5 million in year 4. Senior company executives were undecided whether to move forward with the development of the new product. They requested that a discounted cash flow analysis be performed using two different discount rates: 20 percent and 15 percent. a. Should the company proceed with development of the product if the discount rate is 20 percent? Why? b. Does the decision to proceed with development of the…
To increase Sales and Sales Growth, the top Marketing Manager suggested to price products slightly lower than the main competitor and at the same time increase product quality (competitor is not expected to react or make changes). This strategy would require an initial one time investment today of $1 million in advertising (and for some machines) and the Net Profit Margin (and Cash Flows) will be zero for years 1, 2, 3. However, sales are expected to grow 20% in years 1,2,3 (then sales will stabilize and sales growth will be 1% in year 4 and over). Also, in year 4 Net Profit Margin will return to 5% (due to economies of scale). (Some numbers have been pre-filled in the tables below). CURRENT BUSINESS SITUATION END OF YEAR 0 1 … Sales Growth 0% … Net Profit Margin 5% … Sales ($Millions) 80.00 … Profit or Cash Flow 4.00 … NPV(i=.15) 26.67 $Millions SUGGESTED SALES…
Khan Ltd is an importer of novelty products. The directors are considering whether to introduce a new product, expected to have a very short economic life. Two alternative methods of promoting the new product are available, details of which are as follows: Alternative 1 would involve heavy initial advertising and the employment of a large number of agents. The directors expect that an immediate cash outflow of £100,000 would be required (the cost of advertising) which would produce a net cash inflow in year one of £70,000 and £63,000 in year two. Alternative 2 would involve a lower outlay on advertising (£50,000, payable immediately), and no use of agents. It would produce net cash inflows of zero after one year and £42,000 at the end of each of the subsequent two years. Mr Court, a director of Khan Ltd, comments, “I generally favour the payback method for choosing between investment alternatives such as these. However, I am worried that the advertising expenditure under the second…
Durango Cereal Company is considering adding two new kinds of cereal to its product line—one geared toward children and the other toward adults. The company is currently at full capacity and will have to invest a large sum in machinery and production space. However, given the nature of cereal production, the investment in machinery will be more costly for the children’s cereal (Poofy Puffs) than for the adult cereal (Filling Fiber). The expected cash flows for the two cereals are: Year Poofy Puffs Filling Fiber 0 −$24,890,000 −$13,500,000 1 12,950,000 7,230,000 2 10,923,000 8,100,000 3 8,231,000 8,629,000 4 7,242,000 5,238,900 Management requires a minimum return of 15% in order for the project to be acceptable. The discount rate for projects of this level…
Rose Apothecary is considering expanding its business to include a second store. David Rose, the CEO, believes that a marketing study would help to determine the overall demand for the store. Part A: Without the marketing study, the company estimates that there will be an up-front cost of $100,000 to get the new store up and running. The expectation is that there is a 50% chance that the store will generate annual cash flows of $48,000 per year for the subsequent four years and a 50% chance that the store will generate annual cash flows of $22,000 per year for the subsequent four years. What is the NPV of the store expansion project, assuming a 15% cost of capital?
Stationery Supplies is considering installing an inventory control system in itsstore in Provo, Utah. The store carries about 1,400 different inventory items andhas annual gross sales of about $80,000. The inventory control system would cost$12,500 to install and about $2,000 per year in additional supplies, time, andmaintenance. If the savings to the store from the system can be represented as afixed percentage of annual sales, what would that percentage have to be in orderfor the system to pay for itself in five years or less?
You recently went to work for Allied Components Company, a sup-plier of auto repair parts used in the after-market with products from Daimler AG, Ford, Toyota, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm’s ignition system line; it would take some time to build up the market for this product, so the cash inflows would increase over time. Project S involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 3-year lives because Allied is planning to introduce entirely new models after 3 years. Here are the projects’ after-tax cash flows (in thousands of dollars): 02 1 Project L Project S ⫺$100 ⫺$100 $10 $70 $60 $50 3 $80 $20 Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of…
BLTD is investigating the financial viability of a new product called Wimble.The Wimble is a short life product for which a market has been identified at an agreed design specification.The product will only have a life of 12 months.The following estimated information is available in respect of Wimble.• Sales should be 120,000 in the year in batches of 100 units. An average selling price of K1,050 per batch of 100 units is expected. All sales are for cash.• An 80% learning curve will apply for the first 700 batches after which a steady state production time will apply, with the labour time per batch after the first 700 batches equal to the time for the 700th The cost of the first batch was measured at K2,500.This was for 500 hours at K5 per hour.• Variable overhead is estimated at K2 per labour hour.• Direct material will be K500 per batch of wimble for the first 200 batches produced. The second 200 batches will cost 90% of the cost per batch of the first 200 batches. All batches from…