Sam Go Sports Company is trying to decide whether to add football equipment to its existing lines of tennis, baseball, and basketball equipment. Market research studies and cost analyses have provided the following information: 1. Sam Go will need additional machinery to manufacture the football equipment. The machines will cost $440,000, have an estimated 5-vear useful life, and have a $20,000 salvage value. The transportation cost for the machinery will be $30,000. The installation charge will be $12,000, and this includes $4,000 for shoring up floor upon which the heavy machine will be installed. 2. Sales of football equipment for the next 5 years have been projected as follows: Years Sales 1 $320,000 2 $380,000 3 $460,000 4 $520,000 5 $580,000 3. Variable costs are expected to be 39% of selling price in all cases. Fixed costs (including straight-line depreciation) will total $192,000 per year. 4. In addition to the variable and fixed costs mentioned above, the company will advertise its new product line to gain rapid entry into the market, and its advertising campaign costs will be: Advertising Years Cost 1-3 $30,000 per year 4-5 $12,000 per year 5. The company requires a 10% minimum rate of return on investments that it makes, and is in a 35% marginal tax bracket. Required: A. Prepare an analysis of the cash flows for the proposed football equipment project, and determine the Net Present Value of the project. B. Should the company accept or reject the football equipment project? A Cash Flow Spreadsheet Year 2 3 Machinery invoice price Transportation costs Installation costs After-tax revenues After-tax variable costs After-tax fixed costs After-tax advertising costs Depreciation tax shield Sale of machinery Totals Present value factors Present value of cash flows Net present value of project