None Suppose that Calloway golf would like to capitalize on Phil Michelson winning the Open Championship in 2013 byreleasing a new putter. The new product will require new equipment for $424,018.00 that will be depreciated using the 5-year MACRS schedule. The project will run for 2 years with the following forecasted numbers:Putter priceUnits soldCOGSSelling and AdministrativeYear 1$61.03Year 2$61.0319,847.0011,462.0039.00% of sales39.00% of sales21.00% of sales21.00% of salesCalloway has a 13.00% cost of capital and a 37.00% tax rate. The firm expects to sell the equipment after 2 years for aNSV of $165,618.00.What is the project cash flow for year 2? (include the terminal cash flow here)SubmitAnswer format: Currency: Round to: 2 decimal places.

Answered: Suppose that Calloway golf would like…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...

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Suppose that Calloway golf would like to capitalize on Phil Michelson winning the Open Championship in 2013 by releasing a new putter. The new product will require new equipment for $406,762.00 that will be depreciated using the 5-year MACRS schedule. The project will run for 2 years with the following forecasted numbers: Year 1 Year 2 Putter price Units sold COGS Selling and Administrative $63.07 18,114.00 41.00% of sales 19.00% of sales $63.07 10,757.00 41.00% of sales 19.00% of sales Calloway has a 14.00% cost of capital and a 38.00% tax rate. The firm expects to sell the equipment after 2 years for a NSV of $125,352.00. What is the NPV of the project?
Suppose that Calloway golf would like to capitalize on Phil Michelson winning the Open Championship in 2013 by releasing a new putter. The new product will require new equipment for $421,096.00 that will be depreciated using the 5-year MACRS schedule. The project will run for 2 years with the following forecasted numbers: Year 1 Year 2 Putter price $60.58 $60.58 Units sold 18, 005.00 10, 527.00 COGS 38.00% of sales 38.00% of sales Selling and Administrative 20.00% of sales 20.00% of sales Calloway has a 14.00% cost of capital and a 38.00% tax rate. The firm expects to sell the equipment after 2 years for a NSV of $156, 433.00. What is the project cash flow for year 2? (include the terminal cash flow here) Submit Answer format: Currency: Round to: 2 decimal places.
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
One oil company is considering 5 pipe sizes for a new pipeline. The costs for each of them are given below. Assuming that all the pipelines will last 15 years and that the company's minimum acceptable rate of return (MAAR) is 18% per year, determine which pipe size can be used based on A) present value method and B) incremental rate of return method. Tube size in mm 140 160 200 240 300 Initial inversion $9180 $10510 $13180 $15850 $30530 Installation Cost $600 $800 $1400 $1500 $2000 Annual Cost Opperation $6000 $5800 $5200 $4900 $4800
Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.97 million. The product is expected to generate profits of $1.15 million per year for 10 years. The company will have to provide product support expected to cost $95,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 6.1%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.2% and 16.5%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment?
FastTrack Bikes Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $184,000 per year. Once in production, the bike is expected to make $276,000 per year for 10 years. Assume the cost of capital is 10%. a. Calculate the NPV of this investment opportunity. Should the company make the investment? b. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged (Hint: Use Excel to calculate the IRR.) c. Calculate the NPV of this investment opportunity assuming the cost of capital is 13%. Should the company make the investment given this new assumption? Note: Assume that all cash flows occur at the end of the appropriate year and that the the inflows do not start until year 7. a. Calculate the NPV of this investment opportunity. Should the company make the investment? The present value of the costs is $ (Round to the nearest dollar.)
K Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.98 million. The product is expected to generate profits of $1.09 million per year for 10 years. The company will have to provide product support expected to cost $98,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment? a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. If the cost of capital is 5.6%, the NPV will be $ (Round to the nearest dollar.) Should the firm undertake the project? (Select the best choice…
You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: Sales price per abalone = $43 Variable costs per abalone = $10.45 Fixed costs per year = $435,000 Depreciation per year = $130,000 Tax rate = 21% The discount rate for the company is 15 percent, the initial investment in equipment is $910,000, and the project’s economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value. a. What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.97 million. The product is expected to generate profits of $1.08 million per year for ten years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 6.2%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.2%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment?
Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.98 million. The product is expected to generate profits of $1.15 million per year for 10 years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 5.6% ? Should the firm undertake the project? Repeat the analysis for discount rates of 1.3% and 16.3%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment? a. What is the NPV of this investment if the cost of capital is 6.2%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.1% and 17.8%, respectively. If the cost of capital is 6.2%, the NPV will be $ (Round to the nearest dollar.) answer this Should the firm undertake the project? (Select the…

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