Question

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 $356 per set. The company has spent $12,305 for a marketing study that determined the company will sell 5,228 sets per year for seven years. The marketing study also determined that the company will lose sales of 933 sets of its high-priced clubs. The high-priced clubs sell at $1,094 and have variable costs of $680. The company will also increase sales of its cheap clubs by 1,085 sets. The cheap clubs sell for $440 and have variable costs of $210 per set. The fixed costs each year will be $937,294. The company has also spent $117,446 on research and development for the new clubs. The plant and equipment required will cost $2,870,608 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $131,904 that will be returned at the end of the project. The tax rate is 32 percent, and the cost of capital is 9 percent. What is the annual OCF for this project?

Answer 1