Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
A manufacturer is considering venturing into the golf club manufacturing business with a new driver golf club. Your job is to determine if the company
A manufacturer is considering venturing into the golf club manufacturing business with a new driver golf club. Your job is to determine if the company should create this new driver golf club or not. Regarding the costs at t=0 (today), the machinery to create the golf club would cost $2,000,000. It would cost $50,000 to install the machinery and inventories would increase by $100,000. The machinery is expected to last ten years and would be depreciated with straight-line depreciation. The project is expected to last ten years when the project would be ended. The projects cash inflows are expected at begin at t=1 (that is, year 1) and continue through t=10 (year 10). At t=10, the machinery is anticipated to have a salvage value of $40,000. The company expects to sell 500 golf clubs per year at an anticipated price of $500 per golf club. Operating costs, excluding depreciation, are anticipated to be 75% of sales each year. The projects cost of capital is 12% and the firms tax rate is 35%. Determine the projects cash flows for years t=0 to t=10. Please use Excel to estimate the projects cash flows. Then, use Word to answer these questions: 1. If the manufacturer plans on using debt to finance the project, should the estimated project cash flows be changed to reflect these interest charges? Why or why not? 2. If the manufacturer spent $200,000 studying golf clubs last year, should that cost be taken into account with this analysis? Why or why not? 3. If the manufacturer could rent out the factory that is storing the golf club machinery for $80,000 a year, should that be taken into account with this analysis? Why or why not? 4. If this golf club manufacturing venture is going to take away profitable sales from the companys main business of manufacturing refrigerators, should that be taken into account in the analysis? Why or why not
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started