Winnebagel Corp. currently sells 33,000 motor homes per year at $49,500 each, an

Question

Winnebagel Corp. currently sells 33,000 motor homes per year at $49,500 each, and 13,200 luxury motor coaches per year at $93,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 20,900 of these campers per year at $13,200 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 4,950 units per year, and reduce the sales of its motor coaches by 990 units per year.

What is the amount to use as the annual sales figure when evaluating this project?

If the economy booms, RTF, Inc. stock is expected to return 9 percent. If the economy goes into a recessionary period, then RTF is expected to only return 3 percent. The probability of a boom is 69 percent while the probability of a recession is 31 percent. What is the variance of the returns on RTF, Inc. stock?

Explanation / Answer

Portfolio Beta = (1.52*4400 + 1.63*5400 + 1*7900)/(4400 + 5400 + 7900) = 1.32

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Total Sales 4950*49500 -990*93500 + 20900*13200 =428340000

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Expected Return =9*.69 + 3*.31 = 7.14

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Variance = .69*(.09-.0714)^2 + .31*(.03-.0714)^2 = .000770 answer

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