McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell f
ID: 2748694 • Letter: M
Question
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $823 per set and have a variable cost of $397 per set. The company has spent $147989 for a marketing study that determined the company will sell 53003 sets per year for seven years. The marketing study also determined that the company will lose sales of 9477 sets of its high-priced clubs. The high-priced clubs sell at $1006 and have variable costs of $708. The company will also increase sales of its cheap clubs by 10657 sets. The cheap clubs sell for $469 and have variable costs of $227 per set. The fixed costs each year will be $9105972. The company has also spent $1138833 on research and development for the new clubs. The plant and equipment required will cost $28714761 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1267309 that will be returned at the end of the project. The tax rate is 34 percent, and the cost of capital is 8 percent.
What is the annual OCF for this project?
Explanation / Answer
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell f