Golf, Inc. has decided to sell a new line of golf clubs. The specific information on the new

project as follows:

$$ The clubs will sell for $$950$ per set and have a variable cost of $$475$ per set.

$$ The company has spent $$310,000$ for a marketing study.

$$ According to the marketing study, the company will sell $91,000$ sets per year for seven years and

will lose sales of $9,150$ sets per year of its high$-$priced clubs.

$$ The high$-$priced clubs sell at $$1,380$ and have variable costs of $$700.$

$$ The company will also increase sales of its cheap clubs by $11,900$ sets per year and the cheap

clubs sell for $$384$ and have variable costs of $$174$ per set.

$$ The fixed costs each year will be $$15,450,000.$

$$ The company also spent $$2,600,000$ on research and development for the new clubs.

$$ The plant required for this project will cost $$55,800,000$ and falls in the MACRS seven$-$year class.

Year$1$ Year$2$ Year$3$ Year$4$ Year$5$ Year$6$ Year$7$ Year$8$

$0\mathrm{.}14290\mathrm{.}24490\mathrm{.}17490\mathrm{.}12490\mathrm{.}08930\mathrm{.}08920\mathrm{.}08930\mathrm{.}0446$

$$ The plant can be sold for $20\%$ of initial cost in $7$ year

$$ The new clubs will also require an increase in net working capital of $$4,175,000$ that will be

returned at the end of the project.

$$ The tax rate is $21$ percent.

$$ CFO sets the benchmark period of this project $3$ years.

Furthermore, Golf, Inc. has financed for its plant by issuing equity and bonds. The market

value of equity is $$22,320,000$ and the market value of bonds is $$33,480,000.$ This company currently

has a beta of $1\mathrm{.}11.$ The market risk premium is $7\mathrm{.}1$ percent, and T$-$bills are currently yielding $4\mathrm{.}1$ percent.

It also recently issued $25-$year bonds at a coupon rate of $5\mathrm{.}6$ percent. The bonds make semiannual

payments. These bonds currently sell for $97$ percent of par value.

Using Excel $($MUST BE EXCEL$),$ provide the process of constructing a Pro Forma Financial Statement,

calculating cost of capital, and applying the capital budgeting techniques for investment

decisions.

$$ Construct the Pro Forma Financial Statement using given project information

: There is no specific format to construct it$.$ However, you should provide the process of

calculation of operating cash flows and free cash flows step$-$by$-$step.

$$ Compute the cost of capital using given financing information

: You should demonstrate the process of computing fraction of financial sources, cost of debt,

cost of equity, and weighted average cost of capital, respectively