Question
Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,000 per set and have a variable cost
Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,000 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $40/dozen and have a variable cost of $15. The company expects to sell 100,000 boxes (of a dozen) balls. The fixed costs each year will be $11,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,000,000 and will be depreciated using the MACRS seven-year schedule. Assume that the equipment will be sold for 15% of its original cost. The new clubs will also require an increase in net working capital of $2,000,000 that will be returned at the end of the project. The tax rate is 25 percent. Information for computing the cost of capital is given in the table below.
- Compute the depreciation for each year.
- Find the after tax salvage value for the equipment.
- Construct the proforma income statement.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started