ASSIGNMENT
Fleming Golf has decided to sell a new line of golf clubs. The clubs will sell for $1,200 per set and have a variable cost of 80% of revenues per set. The company has spent $350,000 for a marketing study that determined the company will sell 75,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $54/dozen and have a variable cost of $12/dozen. The company expects to sell 100,000 dozen golf balls. The fixed costs each year will be $20,500,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $15,500,000 and will be depreciated using the MACRS seven-year schedule. The equipment will be sold for 150% of its book value in year 7. The new clubs will also require an increase in net working capital of $1,800,000 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 previous problems.
- Construct the proforma income statement for this project.
- Calculate the NPV of the project. (Use the WACC from 3)
- Compute the IRR of the project.
- Compute the profitability of the project.
- Suppose you have $50,000 in your retirement fund and you’ll be saving $15,000 per year at the end of the year for the next 40 years. How much will you have in your fund when you retire if your return is 12% per year.
- Now reconsider Problem 8. This time assume that the returns have a mean of 12% and a standard deviation of 10%. Use a Monte Carlo simulation to estimate how much you will have in the fund in 40 years.
You may find the following video helpful for Problem 9.
