Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,000 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $40/dozen and have a variable cost of $15. The company expects to sell 100,000 boxes (of a dozen) balls. The fixed costs each year will be $11,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,000,000 and will be depreciated using the MACRS seven-year schedule. Assume that the equipment will be sold for 15% of its original cost. The new clubs will also require an increase in net working capital of $2,000,000 that will be returned at the end of the project. The tax rate is 25 percent. Information for computing the cost of capital is given in the table below. Compute the depreciation for each year.
Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,000 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $40/dozen and have a variable cost of $15. The company expects to sell 100,000 boxes (of a dozen) balls. The fixed costs each year will be $11,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,000,000 and will be
- Compute the depreciation for each year.
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