Draw a time line with the relevant cash flows

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Question - Leather Goods Inc. wants to expand its product line into wallets. The required initial outlay is $700,000. They expect to sell 150,000 units per year, and their planning horizon is 5 years. The price of wallets is estimated to be equal to $12 for the entire period, and the costs of production are $9 per unit for the entire period. However, the company expects the wallet project to erode $200,000 of the yearly sales of the existing products of the company. In addition, they estimate that competitors, who produce similar wallets, will erode $100,000 of the firm's current sales if the wallet project does not go through. If the wallet project does go through, erosion from competitors is going to be equal to 50,000. Assume no salvage value (the project is worth zero after the end of 5 years), no taxes, no working capital, and straight line depreciation. Draw a time line with the relevant cash flows for the wallet project. There is no need to compute IRR or NPV.

Reference no: EM133127608

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