McGilla Golf has decided to sell a new line of golf clubs. The length of this pr
ID: 2748786 • 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 $1323022 on research and development for the new clubs. The plant and equipment required will cost $28165560 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1259711 that will be returned at the end of the project. The OCF of the project will be $8883565. The tax rate is 32 percent, and the cost of capital is 10 percent. What is the NPV for this project? (Negative amount should be indicated by a minus sign. Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)
Hint: there is a sunk cost number in this question.
Explanation / Answer
Year Total cash flows PVF@10% Present value 0 $ (29,425,271) 1.000 $ (29,425,271) 1 $ 8,883,565 0.909 $ 8,075,968 2 $ 8,883,565 0.826 $ 7,341,789 3 $ 8,883,565 0.751 $ 6,674,354 4 $ 8,883,565 0.683 $ 6,067,594 5 $ 8,883,565 0.621 $ 5,515,995 6 $ 8,883,565 0.564 $ 5,014,541 7 $ 10,143,276 0.513 $ 5,205,104 Net present value $ 14,470,075