McGilla Golf has decided to sell a new line of golf clubs. The length of this pr
ID: 2720248 • Letter: M
Question
McGilla Golf has decided to sell a new line of golf clubs. The length of this project is seven years. The company has spent $1513675 on research and development for the new clubs. The plant and equipment required will cost $28647188 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1340994 that will be returned at the end of the project. The OCF of the project will be $8168503. The tax rate is 29 percent, and the cost of capital is 11 percent. What is the NPV for this project?
Explanation / Answer
Year Cash flow PVF@7% Present value 0 $ (29,411,020) 1.000 $ (29,411,020) 1 $ 8,169,374 0.935 $ 7,634,929 2 $ 8,169,374 0.873 $ 7,135,448 3 $ 8,169,374 0.816 $ 6,668,643 4 $ 8,169,374 0.763 $ 6,232,376 5 $ 8,169,374 0.713 $ 5,824,651 6 $ 8,169,374 0.666 $ 5,443,599 7 $ 9,438,853 0.623 $ 5,878,043 Net present value $ 15,406,668