The University of Alabama Sneaker 2013 versus Persistence Case Study

Description

Questions:

1. Should the following be included in Sneaker 2013’s capital budgeting cash flow projection? Why or why not?

a. Building a factory and purchase/installation of eqiupment

b. Research and development costs

c. Cannibalization of other sneaker sales

d. Changes in current asset/current liabilities accounts

e. Taxes

f. Cost of goods sold

g. Advertising and promotion expenses

i. Depreciation charges

2. Produce a projected capital budgeting cash flow statement for the Sneaker 2013 project and estimate the project’s payback, NPV, IRR and MIRR.

3. Repeat the same steps for the Persistence project.

4. Which project do you believe is more risky? How do you think you should incorporate differences in risk in y our analysis?

5. Based on the calculations you made, which project looks better for New Balance shareholders? Why?

6. Should Rodriguez be more or less critical of cash flow forecasts for Persistence than of cash flow forecasts for Sneaker 2013? Why or why not?

7. What is your final recommendation to Rodriguez?

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