McGilla Golf has decided to sell a new line of golf clubs. The length of this pr
ID: 2748692 • 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 $1125482 on research and development for the new clubs. The plant and equipment required will cost $28303428 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1321552 that will be returned at the end of the project. The OCF of the project will be $8821384. The tax rate is 33 percent, and the cost of capital is 12 percent. What is the NPV for this project?
(Negative amount should be indicated by a minus sign. Round your final answer to the nearest dollar amount.) Hint: there is a sunk cost number in this question.
Explanation / Answer
Year Cash flow PVF@12% Present value 0 $ (29,624,979) 1.000 $ (29,624,979) 1 $ 8,821,384 0.893 $ 7,876,236 2 $ 8,821,384 0.797 $ 7,032,353 3 $ 8,821,384 0.712 $ 6,278,887 4 $ 8,821,384 0.636 $ 5,606,149 5 $ 8,821,384 0.567 $ 5,005,490 6 $ 8,821,384 0.507 $ 4,469,188 7 $ 10,142,936 0.452 $ 4,588,149 Net present value $ 11,231,473