Reference no: EM13914517
ABC Golf Equipment Corporation is considering venturing into the golf club manufacturing business with a new driver golf club. As the CFO, it is your job is to add the financial perspective to the decision. It is estimated that the current cost (t=0) of the machinery to create the golf club would cost $2,050,000 including all installation expenses. The company also expects to have to maintain $100,000 of inventories associated with the manufacturing of the golf clubs. The machinery is expected to last ten years. The production equipment is expected to last ten years. The project's cash inflows are expected at begin during year 1 (t=1) and continue through all ten years (t=10). The company expects to sell 500 golf clubs per year at an anticipated price of $500 per golf club. Operating costs, excluding depreciation, are anticipated to be 75% of sales each year. The project's cost of capital is 12% and the firm's tax rate is 35%. Determine the project's cash flows for years t=0 to t=10.
Note: Don't forget to consider depreciation (use straight line) when doing the calculations.The equipment is expected to have a resale value of only $40,000 at the end of the tenth year, so this amount is the salvage for purposes of the analysis.
Before you start the analysis, you can work through the example below for guidance.
Acme Company is considering the purchase of new equipment that will be used to produce widgets. As the CFO, you've been asked to complete a financial analysis of cash flows associated with this new purchase. It is estimated that the cost (t=0) of the equipment will be $285,000, with shipping and installation costs of $25,000. The machinery is expected to last 5 years, and is expected to sell for $30,000 at the end of the 5-year period (this remaining value is referred to as the "salvage value"). Assume that the salvage value of the equipment will be equal to the market value of the equipment (i.e., there will be no gain or loss on sale of the equipment at end of Year 5). The project's cash inflows will begin during year 1 (t=1) and will continue through all five years (t=5). The company expects to sell 600 widgets each year at a price of $500 per widget. Operating costs, excluding depreciation, are anticipated to be 70% of sales each year. The firm's tax rate is 35%. Calculate:
1) The initial investment cash outlay
2) Straight-line depreciation
3) Operating cash flows for the 5-year period
|
Net working capital requirements-salvage values
: You have just graduated from the MBA program of a large university and one of your favorite courses was "Today's Entrepreneurs." In fact, you enjoyed it so much you have decided you want to "be your own boss." Depreciation, salvage values, net workin..
|
|
Did interest rates rise or decline after the date of issue
: Assuming the bond was originally issued at face value, did interest rates rise or decline after the date of issue? Would you have expected the market rate of interest on this bond to be more or less than 6.125 percent?
|
|
Is this standard set efficiently, too stringently
: The state's department of environmental protection sets the standard at 20 percent. Is this standard set efficiently, too stringently, or too leniently? Explain briefly.
|
|
How financial statements be useful to managers and employees
: How would the financial statements be useful to managers and employees? How would the financial statements be useful to investors and creditors?
|
|
Initial investment cash outlay
: Acme Company is considering the purchase of new equipment that will be used to produce widgets. As the CFO, you've been asked to complete a financial analysis of cash flows associated with this new purchase. It is estimated that the cost (t=0) o..
|
|
Determine the cost and revenue equations
: As chief financial officer at Apocalyptic Fitness Supply, you track costs and revenue for the daily manufacturing process for your company’s top-selling product, the Spine Crusher unstoppable elliptical trainer. Determine the cost and revenue equatio..
|
|
What would be effect on the companys debt to equity ratio
: What would be the effect on the company's debt to equity ratio, and what would be the effect on the percentage ownership of the company by other stockholders?
|
|
Basic issues confronted by od practitioners
: Objective of activity The prime objective of this activity is to help students understand the basic issues confronted by OD practitioners and how they should deal with them. Learning Outcomes After attempting this assignment students will be able ..
|
|
Property taxes in two equal installments
: Steve Lowe must pay his property taxes in two equal installments on December 1 & april 1. The two payments are taxes for fiscal year that begins on July 1 & ends the following june 30. Steve purchased a home on September 1. To open the account, Steve..
|