Calculate the profitability index for the project

Assignment Help Financial Management

Reference no: EM131886346

NE Golf has decided to sell a new line of golf clubs. The clubs will sell for $650 per set and have a variable cost of $340 per set. The company spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $550. The company will also increase sales of its cheap clubs by 15,000 sets. The cheap clubs sell for $300 and have variable costs of $100 per set. The fixed costs each year will be $9,000,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $18,400,000 and will be depreciated on a straight-line basis. The new clubs will also require a net working capital investment of 20% of annual sales (hint: NWC investment at time zero). The tax rate is 40% and the cost of capital is 10%.

Calculate the payback period

Calculate the profitability index for the project

Calculate the NPV for the project

Calculate the IRR for the project

Should NE Golf undertake this new project?

Reference no: EM131886346

Questions Cloud

Alternative dividend policies : Calculate Boehm's total dividends for 2016 under each of the following policies:

What mutual funds would you recommend : What mutual funds would you recommend for a 40 years old single man who is saving for his retirement? He hopes to retire at age 70.

What happens to value of existing bonds : As the interest rates rise in the market, what happens to the value of existing bonds?

Futures contracts have initial margin : The CME EUR futures contracts have an initial margin of USD 3,200 per contract and a maintenance margin of USD 2,000.

Calculate the profitability index for the project : NE Golf has decided to sell a new line of golf clubs. Calculate the profitability index for the project. Calculate the NPV for the project

Reconcile the trade-offs between differentiation-low cost : What is Blue Ocean strategy? How does a successful Blue Ocean strategy reconcile the trade-offs between differentiation and low cost?

Project cash flow-use cash flow from assets : Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 1. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 3

What is effective rate of interest : What is the effective rate of interest?

Capital investments that hospital might consider : What are some examples of capital investments that a hospital might consider?

User Account

All Pages