McGilla Golf is evaluating a new golf club. The clubs will sell for $930 per set...

4.5 Ratings (954 Votes)

Calculation of net cash inflow per year-

Sale value of normal clubs	43710000
Sale value of low valued clubs	4731000
Less-Variable cost of normal clubs	19505000
Less-Variable cost of low valued clubs	1653000
Less-opportunity cost of high valued clubs	7656000
Less-Fixed cost	9300000
Less-Depreciation	4100000
Profit before tax	6227000
Tax @25%	1556750
Profit after Tax	4670250
Add-Depreciation	4100000
Net cash inflow per year	8770250

Calculation of cash outflows-

PV factor = (1/1.12)^1+(1/1.12)^2....+(1/1.12)^7

= 4.5638

NPV = PV of net cash inflow - PV of cash outflow

= (8770250*4.5638 + 2320000*0.4523) - 32160000

= 41075002.95 - 32160000

= $8915002.95

Notes-

In PV of cash inflow return of working capital at year end of 7 will also be included i.e. (2320000*0.4523)

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