Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

McGilla Golkf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost

McGilla Golkf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that determine the company will sell 60,000 sets per year for seven years. The marketing study also determined that then company will lose sales of 12,000 sets of hits high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $620. The company will also increase sales of it cheap clubs by 15,000 sets. The cheap clubs sell for $400, and have variable costs of $210 per set. The fixed cost each year is $9,300,000. The company also spend $1,000,000 on R&D for the new clubs. The plant and equipment required will cost $29,400,000 and will be depreciated on a straight-line basis over 7 years to a salvage value of $0. The new clubs will also require an increase in net working capital of $1,400,000 that will be fully recovered at the end of the project. The tax rate is 40% and the cost of capital is 14 percent.

a) What are the incremental operating cash flows for this project?

b) What are the incremental cash flows associated with net working capital?

c) What are the incremental cash flows associated with investments?

d) What is the payback for this project?

e) What is the IRR of this project?

f) What is the NPV of this project?

Please write down the relevant process clearly

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Banking Secrecy And Global Finance

Authors: Donato Masciandaro, Olga Balakina

1st Edition

1137400099, 978-1137400093

More Books

Students also viewed these Finance questions