Question
In: Finance
The Light Blue Bedding Company is considering two new products for addition to its existing offerings....
The Light Blue Bedding Company is considering two new products
for addition to its existing offerings. The products are considered
mutually exclusive, since they appeal to the same target market.
The projected cash flow streams are below.
YearProduct AProduct B
0-$17,000-$17,000
18,0002,000
27,0005,000
35,0009,000
43,0009,500
a. Calculate the internal rate of return for each
project.
b. Calculate the NPV for each project at 0, 5, 10, 15, 20, 25,
and 30%. Use your results to plot the NPV profile graphs. Be sure
to identify the IRR for each project on the graph.
c. If the firm’s WACC is 8%, which product is
preferable?
d. If the firm’s WACC is 14%, which product is
preferable?
e. Calculate the crossover rate, and explain in words what it
represents.
Solutions
Expert Solution
mutually exclusive means only one we have to choose between
them
c)If firm WACC is 8% prefer product B
d)if firm WACC is 14% prefer product A
e)Cross over rate is rate at which the cash flow difference between
the projects is calculated and IRR is found for this. The 12.18%
and it is the cost of capital at which the net present value of one
projects cross the other.
jeff jeffy answered 2 years agoRelated Solutions
Birch manufacturing is considering the addition of another product line to its offerings. Equipment needed to...
Birch manufacturing is considering the addition of another
product line to its offerings. Equipment needed to produce the new
line will cost $192,410. Birch estimates that the net cash inflows
from the new product line will be as follows: Years 1-10 $17,750
(each year) Years 11-15 $4,970 (each year) Year 16-20 $2,070
If the company can establish a steady customer base before
production starts and the cash inflows will be $14,400 per year for
years 1 – 15, what will...
Zachary Company is considering the addition of a new product to its cosmetics line. The company...
Zachary Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow. Relevant Information Skin Cream Bath Oil Color Gel
Budgeted sales in units (a) 140,000 220,000 100,000 Expected sales
price (b) $ 7 $ 7 $ 15 Variable costs per unit (c) $ 2 $ 4...
Walton Company is considering the addition of a new product to its cosmetics line. The company...
Walton Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
138,000
218,000
98,000
Expected sales price (b)
$
10
$
9
$
16
Variable costs per unit (c)
$
2
$
4...
Zachary Company is considering the addition of a new product to its cosmetics line. The company...
Zachary Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
140,000
220,000
100,000
Expected sales price (b)
$
7
$
7
$
15
Variable costs per unit (c)
$
2
$
4...
Vernon Company is considering the addition of a new product to its cosmetics line. The company...
Vernon Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
136,000
216,000
96,000
Expected sales price (b)
$
9
$
7
$
15
Variable costs per unit (c)
$
2
$
4...
Solomon Company is considering the addition of a new product to its cosmetics line. The company...
Solomon Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
130,000
210,000
90,000
Expected sales price (b)
$
10
$
9
$
15
Variable costs per unit (c)
$
2
$
4...
Baird Company is considering the addition of a new product to its cosmetics line. The company...
Baird Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
104,000
184,000
64,000
Expected sales price (b)
$
9
$
4
$
11
Variable costs per unit (c)
$
2
$
1...
Rooney Company is considering the addition of a new product to its cosmetics line. The company...
Rooney Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
128,000
208,000
88,000
Expected sales price (b)
$
9
$
7
$
14
Variable costs per unit (c)
$
2
$
4...
Rundle Company is considering the addition of a new product to its cosmetics line. The company...
Rundle Company is considering the addition of a new product to
its cosmetics line. The company has three distinctly different
options: a skin cream, a bath oil, or a hair coloring gel. Relevant
information and budgeted annual income statements for each of the
products follow.
Relevant Information
Skin Cream
Bath Oil
Color Gel
Budgeted sales in units (a)
126,000
206,000
86,000
Expected sales price (b)
$
8
$
6
$
13
Variable costs per unit (c)
$
2
$
4...
Blue Ridge Mill, was considering the addition of new on-site long-wood woodyard. The addition would have...
Blue Ridge Mill, was considering the addition of new on-site
long-wood woodyard. The addition would have two primary benefits:
to eliminate the need to purchase short-wood from an outside
supplier and create the opportunity to sell short-wood on the open
market as a new market for Worldwide Paper Company (WPC). The new
woodyard would allow the Blue Ridge Mill not only to reduce its
operating costs but also to increase its revenues. The proposed
woodyard will utilise new technology that...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- what is the person in environment perspective?
- If one calculated a standard deviation of 18.38% for a security with an expected return of...
- The Declaration of Independence contends that "whenever any Form of Government becomes destructive" of individual life,...
- Where did Hip Hop originate? Who are some of the early innovators of Rap? What are...
- JAVA Remember the childhood game “Rock, Paper, Scissors”? It is a two-players game in which each...
- Assess potential global strategies for the organization. What are the four types of global strategies What...
- Consider the following abbreviated financial statements for Weston Enterprises: (Do not round intermediate calculations.) WESTON ENTERPRISES...
ADVERTISEMENT