Winnebagel Corp. currently sells 42,000 motor homes per year at $63,000 each, and 16,800 luxury motor coaches per year at $119,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 26,600 of these campers per year at $16,800 each. An independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 6,300 units per year, and reduce the sales of its motor coaches by 1,260 units per year. What is the amount to use as the annual sales figure when evaluating this project?
$446,880,000
$659,148,000
$693,840,000
$993,720,000
$728,532,000
| Year | Cash Flow |
| 0 | −$8,600 |
| 1 | 4,400 |
| 2 | 4,700 |
| 3 | 4,000 |
| a. What is the profitability index for the cash flows if the relevant discount rate is 7 percent? |
| b. What is the profitability index for the cash flows if the relevant discount rate is 15 percent? |
| c. What is the profitability index for the cash flows if the relevant discount rate is 22 percent? |
| What is the IRR of the following set of cash flows? |
| Year | Cash Flow |
| 0 | –$10,237 |
| 1 | 5,100 |
| 2 | 5,400 |
| 3 | 4,200 |
Multiple Choice
22.3%
20.18%
21.24%
| project that provides annual cash flows of $10,600 for 8 years costs $56,550 today. |
| a. If the required return is 7 percent, what is the NPV for this project? |
| b. Determine the IRR for this project. |
| A firm evaluates all of its projects by using the NPV decision rule. |
| Year | Cash Flow | ||
| 0 | –$27,000 | ||
| 1 | 20,000 | ||
| 2 | 13,000 | ||
| 3 | 8,000 | ||
| a. At a required return of 13 percent, what is the NPV for this project? |
| b. At a required return of 33 percent, what is the NPV for this project? |
| Q1. | ||||||
| Current sales | ||||||
| Motor Homes (42000 units @ 63000) | 2646000000 | |||||
| Luxury Motor coaches (16800 units @119000) | 1999200000 | |||||
| Current sales | 4645200000 | |||||
| Proposed Sales: | ||||||
| Motor homes (48300 units @63000) | 3042900000 | |||||
| Luxury Motor coaches (15540 units @119000) | 1849260000 | |||||
| Campers (26600 units @ 16800) | 446880000 | |||||
| Proposed Sales: | 5339040000 | |||||
| Incremental sales to be tken for evaluation | 693840000 | |||||
| Answer is 693,840,000 | ||||||
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