Diva (Pty) Ltd (Diva) is a large clothing retailer with multiple clothing lines. The entity is...
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Diva (Pty) Ltd ("Diva") is a large clothing retailer with multiple clothing lines. The entity is currently evaluating a new potential product line -a lounge wear product line. Diva will conduct a market study to determine whether the lounge wear line will be successful. During this market study, members of the public will be surveyed in popular shopping centres. The total study will cost Diva R250 000. Diva has already incurred R28 000 (additional to the aforementioned R250 000) for the design and manufacturing of clothing items that will be part of this lounge wear product line, to use as demonstration pieces in the market surveys. From past experience in the clothing industry and knowledge of the entity's customer base, Diva expects that it is 75% probable that the survey will indicate that the lounge wear line will be successful. In the unlikely event of the survey's result indicating a failure, Diva will not continue to pursue the lounge wear clothing line. If, however successful, a further R2 300 000 launching cost will be incurred to manufacture, market, distribute and sell the lounge wear as one of Diva's official products. Both the survey cost as well as the potential cost to launch will be incurred at the start of the project (i.e., year 0). If extreme high sales of lounge wear are achieved, which is 44% likely, R1 750 000 net cash profit will be made in the first year after launching the product line and R1 011 000 in the following two years. If the average expected sales are achieved (which is 56% likely) R 1 306 000 net profit will be made during the lounge wear product lines' lifespan. Similar Diva product lines to the lounge wear, are sold to the public for 3 years before re-evaluating whether to continue selling the relevant product line as an official product line of Diva. The lounge wear will follow this trend, should this product line be pursued. Diva's weighted average cost of capital is 11.8% per annum and the finances required relating to the lounge wear product line will be obtained from Diva's communal pool of funds. 68 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: HFMN331-1_Jul-Dec2023_FA1_V4_ES_17072023 Calculate the net present value by incorporating a decision tree to assist Diva (Pty) Ltd in deciding whether the entity should pursue the lounge wear product line. Diva (Pty) Ltd ("Diva") is a large clothing retailer with multiple clothing lines. The entity is currently evaluating a new potential product line -a lounge wear product line. Diva will conduct a market study to determine whether the lounge wear line will be successful. During this market study, members of the public will be surveyed in popular shopping centres. The total study will cost Diva R250 000. Diva has already incurred R28 000 (additional to the aforementioned R250 000) for the design and manufacturing of clothing items that will be part of this lounge wear product line, to use as demonstration pieces in the market surveys. From past experience in the clothing industry and knowledge of the entity's customer base, Diva expects that it is 75% probable that the survey will indicate that the lounge wear line will be successful. In the unlikely event of the survey's result indicating a failure, Diva will not continue to pursue the lounge wear clothing line. If, however successful, a further R2 300 000 launching cost will be incurred to manufacture, market, distribute and sell the lounge wear as one of Diva's official products. Both the survey cost as well as the potential cost to launch will be incurred at the start of the project (i.e., year 0). If extreme high sales of lounge wear are achieved, which is 44% likely, R1 750 000 net cash profit will be made in the first year after launching the product line and R1 011 000 in the following two years. If the average expected sales are achieved (which is 56% likely) R 1 306 000 net profit will be made during the lounge wear product lines' lifespan. Similar Diva product lines to the lounge wear, are sold to the public for 3 years before re-evaluating whether to continue selling the relevant product line as an official product line of Diva. The lounge wear will follow this trend, should this product line be pursued. Diva's weighted average cost of capital is 11.8% per annum and the finances required relating to the lounge wear product line will be obtained from Diva's communal pool of funds. 68 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: HFMN331-1_Jul-Dec2023_FA1_V4_ES_17072023 Calculate the net present value by incorporating a decision tree to assist Diva (Pty) Ltd in deciding whether the entity should pursue the lounge wear product line. Diva (Pty) Ltd ("Diva") is a large clothing retailer with multiple clothing lines. The entity is currently evaluating a new potential product line-a lounge wear product line. Diva will conduct a market study to determine whether the lounge wear line will be successful. During this market study, members of the public will be surveyed in popular shopping centres. The total study will cost Diva R250 000. Diva has already incurred R28 000 (additional to the aforementioned R250 000) for the design and manufacturing of clothing items that will be part of this lounge wear product line, to use as demonstration pieces in the market surveys. From past experience in the clothing industry and knowledge of the entity's customer base, Diva expects that it is 75% probable that the survey will indicate that the lounge wear line will be successful. In the unlikely event of the survey's result indicating a failure, Diva will not continue to pursue the lounge wear clothing line. If, however successful, a further R2 300 000 launching cost will be incurred to manufacture, market, distribute and sell the lounge wear as one of Diva's official products. Both the survey cost as well as the potential cost to launch will be incurred at the start of the project (i.e., year 0). If extreme high sales of lounge wear are achieved, which is 44% likely, R1 750 000 net cash profit will be made in the first year after launching the product line and R1 011 000 in the following two years. If the average expected sales are achieved (which is 56% likely) R 1 306 000 net profit will be made during the lounge wear product lines' lifespan. Similar Diva product lines to the lounge wear, are sold to the public for 3 years before re-evaluating whether to continue selling the relevant product line as an official product line of Diva. The lounge wear will follow this trend, should this product line be pursued. Diva's weighted average cost of capital is 11.8% per annum and the finances required relating to the lounge wear product line will be obtained from Diva's communal pool of funds. 68 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: HFMN331-1_Jul-Dec2023_FA1_V4_ES_17072023 Calculate the net present value by incorporating a decision tree to assist Diva (Pty) Ltd in deciding whether the entity should pursue the lounge wear product line. Diva (Pty) Ltd ("Diva") is a large clothing retailer with multiple clothing lines. The entity is currently evaluating a new potential product line -a lounge wear product line. Diva will conduct a market study to determine whether the lounge wear line will be successful. During this market study, members of the public will be surveyed in popular shopping centres. The total study will cost Diva R250 000. Diva has already incurred R28 000 (additional to the aforementioned R250 000) for the design and manufacturing of clothing items that will be part of this lounge wear product line, to use as demonstration pieces in the market surveys. From past experience in the clothing industry and knowledge of the entity's customer base, Diva expects that it is 75% probable that the survey will indicate that the lounge wear line will be successful. In the unlikely event of the survey's result indicating a failure, Diva will not continue to pursue the lounge wear clothing line. If, however successful, a further R2 300 000 launching cost will be incurred to manufacture, market, distribute and sell the lounge wear as one of Diva's official products. Both the survey cost as well as the potential cost to launch will be incurred at the start of the project (i.e., year 0). If extreme high sales of lounge wear are achieved, which is 44% likely, R1 750 000 net cash profit will be made in the first year after launching the product line and R1 011 000 in the following two years. If the average expected sales are achieved (which is 56% likely) R 1 306 000 net profit will be made during the lounge wear product lines' lifespan. Similar Diva product lines to the lounge wear, are sold to the public for 3 years before re-evaluating whether to continue selling the relevant product line as an official product line of Diva. The lounge wear will follow this trend, should this product line be pursued. Diva's weighted average cost of capital is 11.8% per annum and the finances required relating to the lounge wear product line will be obtained from Diva's communal pool of funds. 68 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: HFMN331-1_Jul-Dec2023_FA1_V4_ES_17072023 Calculate the net present value by incorporating a decision tree to assist Diva (Pty) Ltd in deciding whether the entity should pursue the lounge wear product line. Diva (Pty) Ltd ("Diva") is a large clothing retailer with multiple clothing lines. The entity is currently evaluating a new potential product line -a lounge wear product line. Diva will conduct a market study to determine whether the lounge wear line will be successful. During this market study, members of the public will be surveyed in popular shopping centres. The total study will cost Diva R250 000. Diva has already incurred R28 000 (additional to the aforementioned R250 000) for the design and manufacturing of clothing items that will be part of this lounge wear product line, to use as demonstration pieces in the market surveys. From past experience in the clothing industry and knowledge of the entity's customer base, Diva expects that it is 75% probable that the survey will indicate that the lounge wear line will be successful. In the unlikely event of the survey's result indicating a failure, Diva will not continue to pursue the lounge wear clothing line. If, however successful, a further R2 300 000 launching cost will be incurred to manufacture, market, distribute and sell the lounge wear as one of Diva's official products. Both the survey cost as well as the potential cost to launch will be incurred at the start of the project (i.e., year 0). If extreme high sales of lounge wear are achieved, which is 44% likely, R1 750 000 net cash profit will be made in the first year after launching the product line and R1 011 000 in the following two years. If the average expected sales are achieved (which is 56% likely) R 1 306 000 net profit will be made during the lounge wear product lines' lifespan. Similar Diva product lines to the lounge wear, are sold to the public for 3 years before re-evaluating whether to continue selling the relevant product line as an official product line of Diva. The lounge wear will follow this trend, should this product line be pursued. Diva's weighted average cost of capital is 11.8% per annum and the finances required relating to the lounge wear product line will be obtained from Diva's communal pool of funds. 68 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: HFMN331-1_Jul-Dec2023_FA1_V4_ES_17072023 Calculate the net present value by incorporating a decision tree to assist Diva (Pty) Ltd in deciding whether the entity should pursue the lounge wear product line. Diva (Pty) Ltd ("Diva") is a large clothing retailer with multiple clothing lines. The entity is currently evaluating a new potential product line-a lounge wear product line. Diva will conduct a market study to determine whether the lounge wear line will be successful. During this market study, members of the public will be surveyed in popular shopping centres. The total study will cost Diva R250 000. Diva has already incurred R28 000 (additional to the aforementioned R250 000) for the design and manufacturing of clothing items that will be part of this lounge wear product line, to use as demonstration pieces in the market surveys. From past experience in the clothing industry and knowledge of the entity's customer base, Diva expects that it is 75% probable that the survey will indicate that the lounge wear line will be successful. In the unlikely event of the survey's result indicating a failure, Diva will not continue to pursue the lounge wear clothing line. If, however successful, a further R2 300 000 launching cost will be incurred to manufacture, market, distribute and sell the lounge wear as one of Diva's official products. Both the survey cost as well as the potential cost to launch will be incurred at the start of the project (i.e., year 0). If extreme high sales of lounge wear are achieved, which is 44% likely, R1 750 000 net cash profit will be made in the first year after launching the product line and R1 011 000 in the following two years. If the average expected sales are achieved (which is 56% likely) R 1 306 000 net profit will be made during the lounge wear product lines' lifespan. Similar Diva product lines to the lounge wear, are sold to the public for 3 years before re-evaluating whether to continue selling the relevant product line as an official product line of Diva. The lounge wear will follow this trend, should this product line be pursued. Diva's weighted average cost of capital is 11.8% per annum and the finances required relating to the lounge wear product line will be obtained from Diva's communal pool of funds. 68 ANNEXURE F: FORMATIVE ASSESSMENT 1 REQUIRED: HFMN331-1_Jul-Dec2023_FA1_V4_ES_17072023 Calculate the net present value by incorporating a decision tree to assist Diva (Pty) Ltd in deciding whether the entity should pursue the lounge wear product line.
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Answer rating: 100% (QA)
To calculate the net present value NPV of the lounge wear product line decision for Diva Pty Ltd we can use a decision tree to incorporate the probabi... View the full answer
Related Book For
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton
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