Question: please answer and defend with reasoning a distribution Company, the commercial area has the option to increase its market share through increasing sales of one
a distribution Company, the commercial area has the option to increase its market share through increasing sales of one product line that it owns. However, to achieve these sales the firm needs to increase inventory. Current sales are $3.5 millions and they can be increased by 15 % if the inventory tumover moves from 30 to 50 days. Gross profit margin is a 70% in both periods, the opent operating profit margin is 40% also in both periods, taxes are 33% and the WACC is given as follows: ke : 22% .kd: 12 % Liabilities are 2.5 times the equity. > Should the new line comercial area products ? decide Use to increase sales in the EVA criteria to decide. of liability to Note: Use the year of 360 days. Assume that are 1000% debt and the assets are equivalent the Assets Invested in Operation (AIO). a distribution Company, the commercial area has the option to increase its market share through increasing sales of one product line that it owns. However, to achieve these sales the firm needs to increase inventory. Current sales are $3.5 millions and they can be increased by 15 % if the inventory tumover moves from 30 to 50 days. Gross profit margin is a 70% in both periods, the opent operating profit margin is 40% also in both periods, taxes are 33% and the WACC is given as follows: ke : 22% .kd: 12 % Liabilities are 2.5 times the equity. > Should the new line comercial area products ? decide Use to increase sales in the EVA criteria to decide. of liability to Note: Use the year of 360 days. Assume that are 1000% debt and the assets are equivalent the Assets Invested in Operation (AIO)
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