Answer to Question #90509 in Finance for mark warren

Question #90509
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.
1
Expert's answer
2019-06-10T09:09:04-0400

The project cash flow for year 2 is:

"CF = (421,075\u00d70.32 + 10,381\u00d764.57\u00d7(1 - 0.42 - 0.21)\u00d7(1 - 0.39) + 148,698)\/(1 + 0.14)^2 = 334,509.83."


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