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 $421,075.00 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 $64.57 $64.57
Units sold 18,834.00 10,381.00
COGS 42.00% of sales 42.00% of sales
Selling and Administrative 21.00% of sales 21.00% of sales

Calloway has a 14.00% cost of capital and a 39.00% tax rate. The firm expects to sell the equipment after 2 years for a NSV of $148,698.00.

What is the project cash flow for year 2? (include the terminal cash flow here)

Answer Format: Currency: Round to: 2 decimal places.

Answer 1

The project cash flow for year 2 is:

$CF = (421,075×0.32 + 10,381×64.57×(1 - 0.42 - 0.21)×(1 - 0.39) + 148,698)/(1 + 0.14)^2 = 334,509.83.$