Question
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $793 per set and have a variable cost
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $793 per set and have a variable cost of $435 per set. The company has spent $10656 for a marketing study that determined the company will sell 5590 sets per year for seven years. The marketing study also determined that the company will lose sales of 978 sets of its high-priced clubs. The high-priced clubs sell at $1050 and have variable costs of $677. The company will also increase sales of its cheap clubs by 1002 sets. The cheap clubs sell for $474 and have variable costs of $259 per set. The fixed costs each year will be $901239. The company has also spent $118364 on research and development for the new clubs. The plant and equipment required will cost $2820160 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $125590 that will be returned at the end of the project. The tax rate is 31 percent, and the cost of capital is 8 percent. What is the annual OCF for this project?
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