Manufactures athletic shoes

Assignment Help Financial Management

Reference no: EM131992786

- You have been hired as a capital budgeting analyst by a sporting good firm that manufactures athletic shoes

- And has captured 10% of the overall shoe market.

- The total market value is worth $100 million a year.

- The fixed costs associated with manufacturing these shoes is $2 million a year

- And variable costs are 40% of the revenues.

- The company’s tax rate is 40%.

- The firm believes that it can increase its market share to 20% by investing $10 million in a new distribution system

- which can be depreciated over the system’s life of 10 years to a salvage value of zero

- And spending $1 million a year on additional advertising.

- The company proposes to continue to maintain working capital at 10% of annual revenues.

- The discount rate used for this project is 8%.

a) What is the initial investment for this project?

b) What is the annual operating cash flow from this project?

c) What is the NPV of this project?

Reference no: EM131992786

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