Cool Comfort Currently Sells 300 Class a Spas,450 Class C

question 52

Multiple Choice

Cool Comfort currently sells 300 Class A spas,450 Class C spas,and 200 deluxe model spas each year.The firm is considering adding a mid-class spa and expects that if it does it can sell 375 of them.However,if the new spa is added,Class A sales are expected to decline to 225 units while the Class C sales are expected to decline to 200.The sales of the deluxe model will not be affected.Class A spas sell for an average of $12,000 each.Class C spas are priced at $6,000 and the deluxe model sells for $17,000 each.The new mid-range spa will sell for $8,000.What is the value of the erosion?

• A)$600,000
• B)$1,200,000
• C)$1,800,000
• D)$2,400,000
• E)$3,900,000

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Definitions:

Cash Flow Per Share

Normally computed as cash flow from operations per share.

Statement of Cash Flows

A financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.

Financing Activities

Transaction and events in a business's operations that involve obtaining resources from creditors and repaying those resources or obtaining capital from owners and providing them with a return on, and of, their investment.

Cash Dividends

Distributions of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders in the form of cash.