Write a memo to Mr. Hillbrandt and comment on the three questions below. Limit the memo to four or five paragraphs since CEOs want an initial succinct explanation to accompany the financial calculations. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.
1. If the manufacturer plans on using debt to finance the project, should the estimated project cash flows be changed to reflect these interest charges? Why or why not?
2. If the manufacturer spent $200,000 studying golf clubs last year, should that cost be taken into account with this analysis? Why or why not?
3. If the manufacturer could rent out the factory that is storing the golf club machinery for $80,000 a year, should that be taken into account with this analysis? Why or why not?
4. If ABC Golf Equipment Corporation goes ahead with this new manufacturing venture, the company may no longer be allowed to represent a competing brand of golf clubs that currently accounts for 20% of its profits. Should this be considered in the analysis? Why or why not? What other factors should be considered in making the decision?