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McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $700 per set and have a variable cost of $200 per set. The company has spent $137,000 for a marketing study that determined the company will sell 56,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $300. The company will also increase sales of its cheap clubs by 7,000 sets. The cheap clubs sell for $300 and have variable costs of $100 per set. The fixed costs each year will be $9,134,000. The company has also spent $1,187,000 on research and development for the new clubs. The plant and equipment required will cost $20,300,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,127,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 16 percent. The payback period is years (Round your answer to 3 decimal places. (e.g., 32.161)), the NPV is $ (Negative amount should be indicated by a minus sign. Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 32)), and the IRR is percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
Which of the following transactions would produce income according to the Haig-Simons definition that would not legally be taxed under IRS rules? a. Receiving a cash payment for painting a client’s house. b. Receiving a 1971 Ford Thunderbird as payme..
It is always better to finance long term projects with equity rather than debts. Discuss.
Calculating Future Values. You have just made your first $5,000 contribution to your individual retirement account. Assuming you earn a 10.1 percent rate of return and make no additional contributions, what will your account be worth when you retire ..
Suppose you sell a fixed asset for $91,000 when it's book value is $112,000. If your company's marginal tax rate is 35%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
Pierre Imports recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 9 percent annual coupon. The second issue consisted of 10-year bonds with a 8 percent annual coupon and attached warrants. Discuss 3 advantag..
Mitchell Manufacturing Company has $1,000,000,000 in sales and $260,000,000 in fixed assets. Currently, the company's fixed assets are operating at 75% of capacity. What level of sales could Mitchell have obtained if it had been operating at full cap..
A company's 5-year bonds are yielding 9.15% per year. Treasury bonds with the same maturity are yielding 6.55% per year, and the real risk-free rate (r*) is 2.45%. The average inflation premium is 3.7%, and the maturity risk premium is estimated to b..
Noisy Firm Corp., a maker of stereos, expects to report pretax income of $60,000 this year. The company’s CFO is considering purchase of a new robot. The robot will have an equipment cost of $10,000, and will cost $2,500 to install. If the firm reduc..
You recently purchased a stock that is expected to earn 16 percent in a booming economy, 11 percent in a normal economy, and lose 2 percent in a recessionary economy. There is a 18 percent probability of a boom, a 64 percent chance of a normal econom..
Consider a common stock with the following expected dividends: $2 in one year (i.e., at t=1), $3 in two years (at t=2), $0 in three years (at t=3), $2 in four years (at t=4) and $5 in five years (at t=5).
ABC analysis, standardisation and variety reduction, Inventory Driven Costs, EDI works, Just in Time, dependent and independent demand
Consider a four-year project with the following information: initial fixed asset investment = $450,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $26; variable costs = $16; fixed costs = $140,000; quantit..
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