Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $802 per set and have a variable cost of $416 per set. The company has spent $14,126 for a marketing study that determined the company will sell 5,523 sets per year for seven years. The marketing study also determined that the company will lose sales of 960 sets of its high-priced clubs. The high-priced clubs sell at $1,120 and have variable costs of $660. The company will also increase sales of its cheap clubs by 1,004 sets. The cheap clubs sell for $444 and have variable costs of $259 per set. The fixed costs each year will be $882,475. The company has also spent $116,400 on research and development for the new clubs. The plant and equipment required will cost $2,885,537 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $134,175 that will be returned at the end of the project. The tax rate is 29 percent, and the cost of capital is 11 percent. What is the annual OCF for this project?

Answer 1