Question
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $850 per set and have a variable cost
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $850 per set and have a variable cost of $400 per set. The company has spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for 7 years. The marketing study also determined that the company will increase sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $620 per set. The company will also lose sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $430 and have variable costs of $200 per set. The fixed costs each year will be $9.7 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $35.1 million and will be depreciated on a straight-line basis to 100,000. The new clubs will also require an increase in net working capital of $1.7 million that will be returned at the end of the project. The tax rate is 25% and the required rate of return is 10%. 2). What is the total project cash flow in year 7?
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