Question

11.2a McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $754 per set and have a variable cost of $358 per set. The company has spent $17,603 for a marketing study that determined the company will sell 5,470 sets per year for seven years. The marketing study also determined that the company will lose sales of 961 sets of its high-priced clubs. The high-priced clubs sell at $1,197 and have variable costs of $709. The company will also increase sales of its cheap clubs by 1,013 sets. The cheap clubs sell for $404 and have variable costs of $251 per set. The fixed costs each year will be $933,448. The company has also spent $107,669 on research and development for the new clubs. The plant and equipment required will cost $2,819,196 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $126,723 that will be returned at the end of the project. The tax rate is 29 percent, and the cost of capital is 12 percent. What is the annual OCF for this project?

Answer 1