McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for
Question:
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $950 per set and have a variable cost of $415 per set. The company has spent $150,000 for a marketing study that determined the company will sell 50,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,000 sets of its high-priced clubs. The high-priced clubs sell at $1,450 and have variable costs of $590. The company also will increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $475 and have variable costs of $210 per set. The fixed costs each year will be $9.4 million. The company also has spent $1 million on research and development for the new clubs. The plant and equipment required will cost $29.4 million and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2.4 million that will be returned at the end of the project. The tax rate is 24 percent and the cost of capital is 14 percent. Calculate the payback period, the NPV, and the IRR.
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan