How will you incorporate the difference in their risks into the capital budgeting analysis? Which project, Sneaker 2013 or Persistence, is better for New Balance shareholders? Why?

Questions for Sneaker 2013 Case

1. Should the following be included in the relevant cash flow projection in the capital budgeting analysis of Sneaker 2013 Project? Why or why not? And if you include any of the following items in the relevant cash flow, explain if it should be a positive or negative cash flow.

1. Building a factory and purchase/installation of the equipment
2. Research and development costs
3. Cannibalization of other sneakers sales
4. Interest costs
5. Changes in current assets necessary for the product line
6. Changes in current liabilities necessary for the product line
7. Taxes
8. Cost of goods sold incurred in the production of the product line
9. Advertising and promotion expenses
10. Depreciation expenses
11. Estimate the following for the Sneaker 2013 Project. Show calculation, with supporting explanations for each of the questions below:
    1. What is the project’s initial investment outlay if the investment happens in 2012?
    2. What is the project’s annual net operating cash flow from Year 2013 to 2018?
    3. What is the projects’ terminal, non-operating net cash flow at the end of the project in 2018?
    4. Show all projected relevant cash flows of this project for capital budgeting decision.
    5. Is the Sneaker 2013 Project economically viable based on Payback, Net Present Value and Internal Rate of Return? Why or why not. Explain in details.
12. Questions for the Persistence Project
13. Which cash flows should be relevant for capital budgeting decision for this project? Also explain if the cash flow associated with each item that you include is a positive or negative cash flow.
14. Estimate the following for the Persistence Project. Show calculation, with supporting explanations for each of the questions below:
    1. What is the project’s initial investment outlay if the investment happens in 2012?
    2. What is the project’s annual net operating cash flow from Year 2013 to 2015?
    3. What is the projects’ terminal, non-operating net cash flow at the end of the project in 2015?
    4. Show all projected relevant cash flows of this project for capital budgeting decision.
    5. Is the Persistence Project economically viable based on Payback, Net Present Value and Internal Rate of Return? Why or why not. Explain in details.
15. Which project, Sneaker 2013 or Persistence, is risker? Why?
16. How will you incorporate the difference in their risks into the capital budgeting analysis?
17. Which project, Sneaker 2013 or Persistence, is better for New Balance shareholders? Why?
18. What is your final recommendation to Rodriguez?