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wrap Text fx Cost of the New P&E Rogers Golf a manufacturer of golf clubs, is considering a new project the introduction of a new

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wrap Text fx Cost of the New P&E Rogers Golf a manufacturer of golf clubs, is considering a new project the introduction of a new line of golf clubs (the Rocket). This new project expected to last three years, and then, to the fact that golf dubs limited lives, itis expected to be d terminated at such time. The cost of new equipment required for the new product (the is related shipping and The company has already incurred $325,000 for preliminary club designs. The company expects to ofemployee training costs prior to the introduction of the new product (the Rocket) and while these training costs are directly related to the Rocket product, they are not associated with the new equipment and will not be capitalized and depreciated. Unit sales of the new product (the Rocket) are expected to be: 70,000, 110,000 and 7s000, respectively for years 1,2 and Average sales price per unit of the new product (the Rocket) is expected to be S800 in years1through 2 and drop to $750 in year 3 Average variable operating costs for the new product (the Rocket are anticipated to be $475 per unit in year 1, and grow at inflation thereafter. Fixed operating costs for the new product (the Rocket are estimated to be $3,200,000 for year 1, and grow at inflation 15 16 thereafter. The company's annualincremental marketing costs for the new Rocket product areestmated to be sz50,00o for years 1-3. 17 of the new product (the Rocket)isexpected to decrease the unitsales of one of the company's existing golf club lines (the 19 Hammer by and 10.000 units, respectively in years 1,2 and 3. Average sales price per unit thisexisting product (the Hammerl is expected to be S700 in years 1 through 3. Average variable operating costs for the existing product anticipated to be $400 per unit in years 1 through 3. There will be an initial working capital requirement of $200,000 to get production of the new product (the Rocket) started, and thereafter, the total investment in working capital is expected to equal 4 percent of the relevant sales dollars for each year. Al working capital should be assumed to be liquidated at the termination of the project at the end of year 3. 26 Interest expense for the new product (the Rocket) is expected to be $2,500,000 for years 1, 2 and 3. The straight-line depreciation method over a three year period with no salvage value should be assumed. The inflation rate should be assumed to be 3% per year. The company's average tax rate is 30% and marginal tax rate is 38% 30 32 Given the above information, determine the annual othru Year 3) incremental free cash flows associated with this potentialnew project. Also, calculate the NPW and IRR on this cash flow for the project. The company's cost of capitalis 120 WACC-Div Growth C-CAPM Leverage Problem Fin Forecasting WACC Proj Cash Flows Ready

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