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Saunders, Incorporated, has decided to produce a new line of shoes that will have a selling price of $68 and a variable cost of $27 per pair. The company spent $187,000 for a marketing study that determined the company should sell 85,000 pairs of the new shoes each year for three years. The marketing study also determined that the company will lose sales of 24,000 pairs of its high-priced shoes that sell for $129 and have variable costs of $63 a pair. The company will also increase sales of its inexpensive shoes by 19,000 pairs. The inexpensive shoes sell for $39 and have variable costs of $15 per pair. The fixed costs each year will be $1.42 million. The company has also spent $1.29 million on research and development for the new shoes. The initial fixed asset requirement is $4.2 million and will be depreciated on a straight-line basis over the life of the project. The new shoes will also require an increase in net working capital of $447,000 that will be returned at the end of the project. Sales and cost projections have a ±2 percent range. The tax rate is 21 percent, and the cost of capital is 12 percent. What is the NPV for the new line of shoes assuming the base-case scenario?

Cool Comfort currently sells 340 Class A spas, 465 Class C spas, and 125 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that, if it does, it can sell 360 of them. However, if the new spa is added, Class A sales are expected to decline to 235 units while the Class C sales are expected to decline to 275 units. The sales of the deluxe model will not be affected. Class A spas sell for an average of $10,700 each. Class C spas are priced at $18,700 and the deluxe model sells for $27,000 each. The new mid-range spa will sell for $13,500. What is the value of the erosion effect?

Stock in Country Road Industries has a beta of 1.62. The market risk premium is 8.2 percent while T-bills are currently yielding 2.9 percent. Country Road’s last paid annual dividend was $1.87 per share and dividends are expected to grow at an annual rate of 3.8 percent indefinitely. The stock sells for $25 per share. What is the estimated cost of equity using the average return of the CAPM and the dividend discount model?

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:

Six months ago, you purchased 500 shares of stock in Szeto Worldwide at a price of $27.84 per share. The stock pays a quarterly dividend of $1.85 per share. Today, you sold all of your shares for $33.20 per share. What is the total amount of your dividend income on this investment?

When evaluating capital project proposals, assume a firm assigns unique discount rates based on the risk level of each project. Accordingly the:

Cantu Custom Auto has sales of $987,400 and costs of goods sold of $362,300. Beginning inventory is $64,300 and ending inventory is $60,900. What is the inventory turnover rate?

Theresa’s Flower Garden has 650 bonds outstanding that are selling for $1,007 each, 2,100 shares of preferred stock with a market price of $68 per share, and 42,000 shares of common stock valued at $44 per share. What weight should be assigned to the preferred stock when computing the weighted average cost of capital?

Mayhew Pet Foods has a beginning accounts payable balance of $43,100 and an ending accounts payable balance of $39,700. Sales for the period were $565,300 and costs of goods sold were $216,900. What was the payables turnover rate?

National Home Rentals has a beta of 1.06, a stock price of $17, and recently paid an annual dividend of $.92 per share. The dividend growth rate is 2.2 percent. The market has a rate of return of 11.2 percent and a risk premium of 7.3 percent. What is the estimated cost of equity using the average return of the CAPM and the dividend discount model?