You are considering making a new golf ball to sell in China to meet the growing demand in the region. This golf ball is less expensive to manufacture, compared to a more well-known brand, but it meets the requirements established by the United States Golf Association (USGA) to participate in any competitive event. Production will require an initial outlay for the purchase of the equipment with a value of $ 1,500,000. The equipment has a six-year life, with an estimated salvage value of $ 100,000. You already own the land on which the project will be located. It has also collected the following information: ? You expect income of $ 500,000 annually for each year of operation. The direct cost of manufacturing the golf ball is expected to account for 30% of revenue. 2 The cost of operations, including marketing, represents another 15% of revenues. You will need to pay a license fee of $ 25,000, plus 3% of revenue, to the company that originally came up with the special design for the golf ball dimples. a. Is this project worth considering a 15% term? Evaluate the project with net present value. b. What is the discounted payback period for the investment? C. The possibility of making the investment between three investors is being evaluated: Investor A is requesting a 10% irrigation premium and is contributing $ 500,000. Investor B is contributing $ 300,000 and requires a 7% risk premium. Investor C will contribute the remainder of the investment and requests a 15% risk premium. An inflation rate of 6% should also be considered. Should the investment be made? Calculate net present value. You are considering making a new golf ball to sell in China to meet the growing demand in the region. This golf ball is less expensive to manufacture, compared to a more well-known brand, but it meets the requirements established by the United States Golf Association (USGA) to participate in any competitive event. Production will require an initial outlay for the purchase of the equipment with a value of $ 1,500,000. The equipment has a six-year life, with an estimated salvage value of $ 100,000. You already own the land on which the project will be located. It has also collected the following information: ? You expect income of $ 500,000 annually for each year of operation. The direct cost of manufacturing the golf ball is expected to account for 30% of revenue. 2 The cost of operations, including marketing, represents another 15% of revenues. You will need to pay a license fee of $ 25,000, plus 3% of revenue, to the company that originally came up with the special design for the golf ball dimples. a. Is this project worth considering a 15% term? Evaluate the project with net present value. b. What is the discounted payback period for the investment? C. The possibility of making the investment between three investors is being evaluated: Investor A is requesting a 10% irrigation premium and is contributing $ 500,000. Investor B is contributing $ 300,000 and requires a 7% risk premium. Investor C will contribute the remainder of the investment and requests a 15% risk premium. An inflation rate of 6% should also be considered. Should the investment be made? Calculate net present value
