Allison Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool
sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label products. The marketing
department has determined that the wool and cashmere sweater lines offer the following probability of outcomes and related cash flows.
Expand wool sweaters line Enter cashmere sweaters line
Expected sales Probability Present value of cash flows from sales Probability Present value of cash flows from sales
Fantastic .3 $262000 .3 $378000
Moderate .3 $194000 .3 $239000
Low .4 $88100 .4 0
The initial cost to expand the wool sweater line is $161000. To enter the cashmere sweater line the initial cost in designs inventory and
equipment is $136000.
Calculate Net present value. (Negative amounts should be indicated by a minus sign.)
Net present value of Expand wool sweaters line?
Net present value of Enter cashmere sweaters line?