Reference no: EM131511605

Part A: Baldwin Company Case The Baldwin Company investigated the marketing potential of brightly colored bowling balls, and concluded that the project could achieve a 10 to 15% share of the market. The Baldwin Company is now considering investing in a machine to produce bowling balls. The bowling balls would be manufactured in a building owned by the firm and located near Los Angeles. This building, which is vacant, and the land can be sold for $150,000 after taxes. Working with his staff, Meadows is preparing an analysis of the proposed new product. He summarizes his assumptions as follows: The cost of the bowling ball machine is $150,000 and it is expected to last five years. At the end of five years, the machine will be sold at a price estimated to be $50,000. Production by year during the five-year life of the machine is expected to be as follows: 6,000 units, 9,000 units, 15,000 units, 12,000 units, and 8,000 units. The price of bowling balls in the first year will be $20. The bowling ball market is highly competitive, so Meadows believes that the price of bowling balls will increase at only 3% per year, as compared to the anticipated general inflation rate of 5%. Conversely, the plastic used to produce bowling balls is rapidly becoming more expensive. Because of this, production cash outflows are expected to grow at 10% per year. First-year production costs will be $12 per unit. The company has determined, based on Baldwin's taxable income, that the appropriate incremental corporate tax rate in the bowling ball project is 33%. Management determines that an initial investment (at Year 0) in net working capital of $15,000 is required. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project's life. Should the project be undertaken? Create the same Excel file that we studied in class.