Suppose that Calloway golf would like to capitalize on Phil Michelson winning the Open Championship in 2013 byreleasing a new putter. The new product will require new equipment for $404,186.00 that will be depreciated usingthe 5-year MACRS schedule. The project will run for 2 years with the following forecasted numbers:Putter priceUnits soldCOGSSelling and AdministrativeYear 1What is the NPV of the project?$64.2618,803.0041.00% of sales20.00% of salesYear 2$64.2611,756.0041.00% of sales20.00% of salesCalloway has a 13.00% cost of capital and a 36.00% tax rate. The firm expects to sell the equipment after 2 yearsfor a NSV of $161,131.00.

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Suppose that Calloway golf would like…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 $406,762.00 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 Units sold COGS Selling and Administrative $63.07 18,114.00 41.00% of sales 19.00% of sales $63.07 10,757.00 41.00% of sales 19.00% of sales Calloway has a 14.00% cost of capital and a 38.00% tax rate. The firm expects to sell the equipment after 2 years for a NSV of $125,352.00. What is the NPV of the project?

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