Question

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 $415,542.00 that will be depreciated using the 5-year MACRS schedule. The project willl run for 2 years with the following forecasted numbers: Year 2 Year 1 Putter price $60.44 $60.44 10,718.00 Units sold 19,645.00 COGS 41.00% of sales 41.00% of sales Selling and Administrative 19.00% of sales 19.00% of sales to sell the equipment after 2 years Calloway has a 14.00% cost of capital and a 40.00% tax rate. The firm for a NSV of $156,675.00 What is the NPV of the project? Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

Tax rate		40%
Calculation of annual depreciation
Depreciation		Year-1	Year-2	Total
Cost		$              415,542	$            415,542
Dep Rate		20.00%	32.00%
Depreciation		$                 83,108	$            132,973	$           216,082
Calculation of after-tax salvage value
Cost of machine			$            415,542
Depreciation			$            216,082
WDV			$            199,460
Sale price			$            156,675
Profit/(Loss)			$             (42,785)
Tax			$             (17,114)
Sale price after-tax			$            173,789
Calculation of annual operating cash flow
		Year-1	Year-2
No of units		19,645	10,718
Selling price		$                   60.44	$                60.44
Operating cost- 41%		$                   24.78	$                24.78
Sale		$     1,187,343.80	$      647,795.92
Less: Operating Cost		$         486,810.96	$      265,596.33
Contribution		$        700,532.84	$      382,199.59
Less: Selling & admin cost @ 19%		$         225,595.32	$      123,081.22
Less: Depreciation		$           83,108.40	$      132,973.44
Profit before tax		$        391,829.12	$      126,144.93
Tax@40%		$         156,731.65	$        50,457.97
Profit After Tax		$        235,097.47	$        75,686.96
Add Depreciation		$           83,108.40	$      132,973.44
Cash Profit after-tax		$        318,205.87	$      208,660.40
Calculation of NPV
						14.00%
Year		Capital		Operating cash	Annual Cash flow	PV factor	Present values
0		$       (415,542.00)			$    (415,542.00)	1.0000	$    (415,542.00)
1				$     318,205.87	$     318,205.87	0.8772	$     279,127.96
2		$         173,789.06		$     208,660.40	$     382,449.46	0.7695	$     294,282.44
					Net Present Value		$     157,868.40