Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $794 per set and have a variable cost of $373 per set. The company has spent $11,837 for a marketing study that determined the company will sell 5,296 sets per year for seven years. The marketing study also determined that the company will lose sales of 951 sets of its high-priced clubs. The high-priced clubs sell at $1,113 and have variable costs of $693. The company will also increase sales of its cheap clubs by 1,095 sets. The cheap clubs sell for $401 and have variable costs of $258 per set. The fixed costs each year will be $860,276. The company has also spent $104,337 on research and development for the new clubs. The plant and equipment required will cost $2,879,057 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $132,412 that will be returned at the end of the project. The tax rate is 30 percent, and the cost of capital is 12 percent. What is the annual OCF for this project?

Answer 1