After one year using the TopCap system, Jonathan Smith, vice president for marketing at C&C Sports, is convinced that the company could sell even more baseball caps. Apparently, the market demand for plain caps that are suitable for logo embroidery by corporations, fraternities, and other groups is greater than current manufacturers can supply. The potential for C&C Sports to extend its sales of baseball caps beyond the athletic team market is huge. The initial specifications for the TopCap system required three workers per eight-hour shift to make up to 1,000 caps per day. Based on initial demand forecasts, Jonathan asked Chad Davis, vice president for operations, to make 240,000 caps in the first year the product was offered. Jonathan is convinced that C&C could sell at least 480,000 caps per year with the correct investment in marketing. The Cash flow reflects making 240,000 caps. Cash Flow Cash Inflows Sales revenue Amount $1,920,000 Cash Outflows Purchase and installation of TopCap system 303,525 Purchase of direct materials 1,200,000 Direct labor 384,000 Variable overhead 211,200 Variable selling expense 12,000 Fixed expenses 50,000 Click here to view the factor table. (a) Calculate the Net present Value of the increase in annual operating income if a second shift was used to produce additional caps? Assume that the relevant range for the fixed costs is 750,000 caps. Remember that there are only 9 years of usable life remaining for the TopCap system and that C&C Sports uses a 12% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 2 decimal places, e.g. 589.71.) Net Present Value $ APPENDIX 9.1 Present value of $1 received in n periods. Periods 4% 5% 1 0.9615 0.9524 6% 0.9434 0.9346 7% 2 0.9246 3 0.8890 4 0.8548 0.9070 0.8638 0.8396 0.8227 0.7921 0.8900 0.8734 0.8163 8% 9% 0.9259 0.9174 0.8573 0.8417 0.7938 0.7722 0.7629 0.7350 0.7084 5 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 10% 11% 12% 13% 14% 16% 18% 0.9091 0.9009 0.8929 0.8850 0.8772 0.8621 0.8475 0.8333 0.8264 0.8116 0.7972 0.7831 0.7695 0.7432 0.7182 0.6944 0.7513 0.7312 0.7118 0.6931 0.6750 0.6407 0.6086 0.5787 0.6830 0.6587 0.6355 0.6133 0.5921 0.5523 0.5158 0.4823 0.6209 0.5935 0.5674 0.5428 0.5194 0.4761 0.4371 0.4019 20% 67699 8 10 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.5645 0.5346 0.5132 0.4817 0.4665 0.4339 0.4241 0.3909 0.3855 0.3522 0.5066 0.4803 0.4556 0.4104 0.3704 0.3349 0.4523 0.4251 0.3996 0.3538 0.3139 0.2791 0.4039 0.3762 0.3506 0.3050 0.2660 0.2326 0.3606 0.3329 0.3075 0.2630 0.2255 0.1938 0.3220 0.2946 0.2697 0.2267 0.1911 0.1615 11 0.6496 0.5847 12 0.6246 0.5568 13 0.6006 14 0.5268 0.4751 0.4289 0.4970 0.4440 0.3971 0.5303 0.4688 0.4150 0.3677 0.5775 0.5051 0.4423 0.3878 0.3405 15 0.5553 0.4810 0.4173 0.3624 0.3152 0.3875 0.3505 0.3555 0.3186 0.3262 0.2897 0.2992 0.2633 0.2745 0.2394 0.3173 0.2875 0.2607 0.2366 0.1954 0.2858 0.2567 0.2307 0.2076 0.1685 0.1372 0.2575 0.2292 0.2042 0.1821 0.1452 0.1163 0.2320 0.2046 0.1807 0.1597 0.1252 0.0985 0.2090 0.1827 0.1599 0.1401 0.1079 0.1619 0.1346 0.1122 0.0935 0.0779 0.0835 0.0649 16 17 0.5339 0.4581 0.3936 0.3387 0.2919 0.5134 0.4363 0.3714 0.3166 0.2703 18 19 0.4936 0.4155 0.3503 0.2959 0.2502 0.4746 0.2519 0.2311 0.2120 20 0.4564 0.2176 0.1883 0.1631 0.1415 0.1229 0.0930 0.0708 0.1978 0.1696 0.1456 0.1252 0.1078 0.0802 0.0600 0.1799 0.1528 0.1300 0.1108 0.0946 0.0691 0.0508 0.3957 0.3305 0.2765 0.2317 0.1945 0.1635 0.1377 0.1161 0.0981 0.0829 0.0596 0.0431 0.0313 0.3769 0.3118 0.2584 0.2145 0.1784 0.1486 0.1240 0.1037 0.0868 0.0728 0.0514 0.0365 0.0261 0.0541 0.0451 0.0376 $1 PV= (1+i)" APPENDIX 9.2 Present value of an annuity of $1 per period. 1 Periods 4% 0.9615 5% 2 3 4 5 6% 7% 8% 9% 10% 11% 12% 13% 16% 18% 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8621 0.8475 0.8333 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6052 1.5656 1.5278 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4868 2.4437 2.4018 2.3612 2.3216 2.2459 2.1743 2.1065 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1698 3.1024 3.0373 2.9745 2.9137 2.7982 2.6901 2.5887 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7907 3.6959 3.6048 3.5172 3.4331 3.2743 3.1272 2.9906 14% 20% 10 63699 7 8 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 4.2305 4.1114 3.9975 3.8887 3.6847 3.4976 3.3255 4.7122 4.5638 4.4226 4.2883 4.0386 3.8115 3.6046 5.1461 4.9676 4.7988 4.6389 4.3436 4.0776 3.8372 5.5370 5.3282 5.1317 4.9464 4.6065 4.3030 4.0310 5.8892 5.6502 5.4262 5.2161 4.8332 4.4941 4.1925 11 2335 12 13 14 15 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607 6.8137 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869 7.1034 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607 7.6061 6.2065 5.9377 5.6869 5.4527 6.4924 6.1944 5.9176 5.6603 6.7499 6.4235 6.1218 5.8424 6.9819 6.6282 6.3025 6.0021 7.1909 6.8109 6.4624 6.1422 5.0286 4.6560 4.3271 5.1971 4.7932 4.4392 5.3423 4.9095 4.5327 5.4675 5.0081 4.6106 5.5755 5.0916 4.6755 16 7228 17 18 19 20 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237 7.3792 6.9740 6.6039 6.2651 5.6685 5.1624 4.7296 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216 7.5488 7.1196 6.7291 6.3729 5.7487 5.2223 4.7746 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556 8.2014 7.7016 7.2497 6.8399 6.4674 5.8178 5.2732 4.8122 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 7.3658 6.9380 6.5504 5.8775 5.3162 4.8435 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136 7.9633 7.4694 7.0248 6.6231 5.9288 5.3527 4.8696 1 $1- PVA= (1+i)" i