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 $407,187.00 that will be depreciated using the 5-year MACRS schedule. The project will run for 2 years with the following forecasted numbers: unanswered not submitted Year 1 Year 2 Putter price $63.15 $63.15 Units sold 18,334.00 11,563.00 COGS 42.00% of sales 42.00% of sales Selling and Administrative 19.00% of sales 19.00% of sales Calloway has a 15.00% cost of capital and a 38.00% tax rate. The firm expects to sell the equipment after 2 years for a NSV of $174,013.00. What is the project cash flow for year 1? Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

Year 1 Putter price 63.15 x Units sold 18,334.00 Total sales 1,157,792.10 486,272.68 Less COGS (42% of sales) Less Selling and Administrative (19% of sales) 219,980.50 Less Depreciation (407187*0.20) 81,437.40 income before tax 370,101.52 Less tax at 38% 140,638.58 229,462.94 net income Add: Depreciation 81,437.40 cash flow 310,900.34