The following information pertains to Fairways Driving Range. Inc.: Item Value 81948 19293 4 32771 The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they will need to purchase a ball dispensing machine, a ball pick-up vehicle, and a tractor and accessories for a total cost of: S 81,948.00 Equipment Cost All of this depreciable equipment will be immediately fully depreciated using bonus depreciation. Buckets Sold The project is expected to operate for 6 years, at the end of which the equipment will be sold for 40% of its original cost. Bucket Price Fairways expects to have sales of 19,293 buckets of balls per year at a price per bucket of S 4.00 Fixed Cost Costs other than taxes are expected to be $ 32,771.00 plus 15% of sales. Variable Cost The project would have an initial NOWC requirement of s 6,837.00 which would be returned in year 6. NOWC Fairways will have a combined Federal + State tax rate of 25% and has a WACC of 18% WACC Complete the following table as we illustrated in class and compute the project's NPV, IRR, MIRR, and Payback. Make a recommendation regarding whether or not the company should take on the project or not. 0.15 6837 0.18 0 2 4 5 6 Purchase Price Taxes Saved Increase NOWC Total Cash Flow Sales Costs Taxable income Tax Operating Cash Flow Selling Price Basis Gain on Sale Tax After Tax Cash Flow Return of NOWC Total Cash Flows NPV IRR MIRR Cumulative Payback The following information pertains to Fairways Driving Range. Inc.: Item Value 81948 19293 4 32771 The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they will need to purchase a ball dispensing machine, a ball pick-up vehicle, and a tractor and accessories for a total cost of: S 81,948.00 Equipment Cost All of this depreciable equipment will be immediately fully depreciated using bonus depreciation. Buckets Sold The project is expected to operate for 6 years, at the end of which the equipment will be sold for 40% of its original cost. Bucket Price Fairways expects to have sales of 19,293 buckets of balls per year at a price per bucket of S 4.00 Fixed Cost Costs other than taxes are expected to be $ 32,771.00 plus 15% of sales. Variable Cost The project would have an initial NOWC requirement of s 6,837.00 which would be returned in year 6. NOWC Fairways will have a combined Federal + State tax rate of 25% and has a WACC of 18% WACC Complete the following table as we illustrated in class and compute the project's NPV, IRR, MIRR, and Payback. Make a recommendation regarding whether or not the company should take on the project or not. 0.15 6837 0.18 0 2 4 5 6 Purchase Price Taxes Saved Increase NOWC Total Cash Flow Sales Costs Taxable income Tax Operating Cash Flow Selling Price Basis Gain on Sale Tax After Tax Cash Flow Return of NOWC Total Cash Flows NPV IRR MIRR Cumulative Payback
