I only need help with the short essay.

If ABC Golf Equipment Corporation goes ahead with this new manufacturing venture, the company may no longer be allowed to represent a competing brand of golf clubs that currently accounts for 20% of its profits. Should this be considered in the analysis? Why or why not? What other factors should be considered in making the decision?

Start with an introduction and end with a summary or conclusion. Use headings. Don?t forget to reference your sources. Maximum length of two pages.

Module 3 - Case CASH FLOW ESTIMATION AND CAPITAL BUDGETING Case Assignment Estimating Project Cash Flows ABC Golf Equipment Corporation is considering venturing into the golf club manufacturing business with a new driver golf club. As the CFO, it is your job is to add the financial perspective to the decision. It is estimated that the current cost (t=0) of the machinery to create the golf club would cost $2,050,000 including all installation expenses. The company also expects to have to maintain $100,000 of inventories associated with the manufacturing of the golf clubs. The machinery is expected to last ten years. The production equipment is expected to last ten years. The project's cash inflows are expected at begin during year 1 (t=1) and continue through all ten years (t=10). 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 project's cost of capital is 12% and the firm's tax rate is 35%. Determine the project's cash flows for years t=0 to t=10. Note: Don't forget to consider depreciation (use straight line) when doing the calculations. The equipment is expected to have a resale value of only $40,000 at the end of the tenth year, so this amount is the salvage for purposes of the analysis. Before you start the analysis, you can work through the example below for guidance. Acme Company is considering the purchase of new equipment that will be used to produce widgets. As the CFO, you've been asked to complete a financial analysis of cash flows associated with this new purchase. It is estimated that the cost (t=0) of the equipment will be $285,000, with shipping and installation costs of $25,000. The machinery is expected to last 5 years, and is expected to sell for $30,000 at the end of the 5-year period (this remaining value is referred to as the \"salvage value\"). Assume that the salvage value of the equipment will be equal to the market value of the equipment (i.e., there will be no gain or loss on sale of the equipment at end of Year 5). The project's cash inflows will begin during year 1 (t=1) and will continue through all five years (t=5). The company expects to sell 600 widgets each year at a price of $500 per widget. Operating costs, excluding depreciation, are anticipated to be 70% of sales each year. The firm's tax rate is 35%. Calculate: 1) The initial investment cash outlay 2) Straight-line depreciation 3) Operating cash flows for the 5-year period Answers: 1) Compute the initial investment cash outlay. This is the total cost of equipment purchase ($285,000), installation and shipping ($25,000), and change in net working capital ($20,000): = $285,000 + $25,000 + $20,000 = $330,000 2) Calculate straight-line depreciation, where salvage value is $30,000 and useful life of the equipment is 5 years: = ($330,000 - $30,000) = $300,000 = ($300,000 / 5 years) = $60,000 3) Calculate operating cash flows, where CFt = (revenues - costs)*(1 - tax rate) CF1 = ($300,000 - $210,000)*(1 - 35%) = $58,500 CF2 = ($300,000 - $210,000)*(1 - 35%) = $58,500 CF3 = ($300,000 - $210,000)*(1 - 35%) = $58,500 CF4 = ($300,000 - $210,000)*(1 - 35%) = $58,500 CF5 = ($300,000 - $210,000)*(1 - 35%) = $58,500 = $58,500 x 5 = $292,500 Required: Computations (use Excel). Use Excel to estimate the project's cash flows. Presentation always matter, but you want to make sure that Mr. Hillbrandt can easily follow your work. He is a busy man. Memo (use Word). Write a memo to Mr. Hillbrandt and comment on the three questions below. Limit the memo to four or five paragraphs since CEOs want an initial succinct explanation to accompany the financial calculations. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading. 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? Short Essay (use Word). If ABC Golf Equipment Corporation goes ahead with this new manufacturing venture, the company may no longer be allowed to represent a competing brand of golf clubs that currently accounts for 20% of its profits. Should this be considered in the analysis? Why or why not? What other factors should be considered in making the decision? Start with an introduction and end with a summary or conclusion. Use headings. Don't forget to reference your sources. Maximum length of two pages. Assignment Expectations Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner. Privacy Policy | Contact ABC Golf Equipment Corporation is considering venturing into the golf club manufacturing business with a new driver golf club. As the CFO, it is your job is to add the financial perspective to the decision. It is estimated that the current cost (t=0) of the machinery to create the golf club would cost $2,050,000 including all installation expenses. The company also expects to have to maintain $100,000 of inventories associated with the manufacturing of the golf clubs. The machinery is expected to last ten years. The production equipment is expected to last ten years. The project's cash inflows are expected at begin during year 1 (t=1) and continue through all ten years (t=10). 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 project's cost of capital is 12% and the firm's tax rate is 35%. Determine the project's cash flows for years t=0 to t=10. The purpose of this memo is to estimate project cash flows In the case given, ABC Golf Equipment Corporation is considering venturing into golf club manufacturing business with a new driver golf club. As a CFO, I have prepared the cash flow analysis using the estimates for cost and revenue. The company is expected to purchase the machinery which will cost $2050,000 and initial working capital required will be $100,000.The revenue of the company will be $250,000 ($500*500 units) for each of the ten years. Operating cost is estimated to be 75% of sales revenue. The operating income of the company is computed by taking depreciation into consideration. Compute the initial investment cash outlay. This is the total cost of equipment purchase ($2,050,000) and net working capital ($100,000): = $2050,000+ $100,000 = $2150,000 Calculate straight-line depreciation, where salvage value is 0 and useful life of the equipment is 10 years: = ($2050,000 - 0) = $2050,000 = ($2050,000 / 10 years) = $205,000 The expected cash flow analysis is attached. 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? If the company plans to use debt for the finance of the project, the cash flow analysis will be revised to include the cost of interest expense and cash outflows for repayment. The cash inflows for each year will decrease by interest payment and principal repayment. (Ogilvie, 2006) 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? The cost $200,000 spent on studying golf clubs will be treated as sunk cost, as the cost has already been incurred and thus have no impact on the project's cash flows. (Garrison,2003) 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? If the manufactured could rent out the factory for $ 80,000, it will be considered as opportunity cost and will be reduced from the yearly cash flows. Recommendation If ABC golf Equipment Corporation goes ahead with this new manufacturing venture, the profits will be considered as opportunity cost for the company.( Ogilvie,2006) Other factors that should be considered before starting the venture are: Availability of competitors and their influence on the company Availability of suppliers Risk involved with new ventures Short Essay (use Word). Need this If ABC Golf Equipment Corporation goes ahead with this new manufacturing venture, the company may no longer be allowed to represent a competing brand of golf clubs that currently accounts for 20% of its profits. Should this be considered in the analysis? Why or why not? What other factors should be considered in making the decision? Start with an introduction and end with a summary or conclusion. Use headings. Don't forget to reference your sources. Maximum length of two pages. Estimating Project Cash Flows Initial Investment Cash Outlay Machinery Cost Installation Inventories Total $2,000,000 $50,000 $100,000 $2,150,000 Depreciation Machinery Cost Installation Minus Salvage Value Depreciation value Total Years Depreciation Total $2,000,000 $50,000 -$40,000 $2,010,000 10 $201,000 Cash Inflows Year Units Sold Sale Price (500 per club) Minus Operating Cost (75% of sales) Minus Depreciation Net Operating Income Minus Tax (35%) Operating Income minus Tax Plus Depreciation Salvage Value Plus Inventories Cash Flows minus Tax 1 2 3 0 1 2 3 4 5 6 7 8 9 10 NPV 5 6 7 8 9 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 Net Present Value (NPV) Year 4 Cash Flow -$2,150,000 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $110,975 $250,975 PV( 12%) Total PV $1 $1 $1 $1 $1 $1 $1 $0 $0 $0 $0 -$2,150,000 $99,085 $88,469 $78,990 $70,527 $62,970 $56,223 $50,199 $44,821 $40,019 $80,807 -$1,477,890 10 $500 $250,000 -$187,500 -$201,000 -$138,500 -$48,475 -$90,025 $201,000 $40,000 $100,000 $250,975