# Masters Golf Products, Inc

Masters Golf Products, Inc Student Help Details Finance 450: Complete the following problems from Chapter 11 in the textbook:
1. P11-4

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2. P11-8
3. P11-17
4. P11-23
1. Do all work in Excel. Do not submit Word files or *.pdf files.
2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.
3. Place each problem on a separate spreadsheet tab.

P11–4 Sunk costs and opportunity costs Masters Golf Products, Inc., spent 3 years and
\$1,000,000 to develop its new line of club heads to replace a line that is becoming obsolete.
To begin manufacturing them, the company will have to invest \$1,800,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows of \$750,000 per year for the next 10 years. The company has determined that the existing line could be sold to a competitor for \$250,000.
a. How should the \$1,000,000 in development costs be classified?
b. How should the \$250,000 sale price for the existing line be classified?
c. Depict all the known relevant cash flows on a time line.
P11–8 Book value and taxes on sale of assets Troy Industries purchased a new machine
3 years ago for \$80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2 on page 000. Assume a 40% tax rate.
a. What is the book value of the machine?
b. Calculate the firm’s tax liability if it sold the machine for each of the following
amounts: \$100,000; \$56,000; \$23,200; and \$15,000.
P11–17 Incremental operating cash flows Richard and Linda Thomson operate a local lawn
maintenance service for commercial and residential property. They have been using a John Deere riding mower for the past several years and believe that it is time to buy a new one. They would like to know the incremental (relevant) cash flows associated with the replacement of the old riding mower. The following data areavailable:

There are 5 years of remaining useful life on the old mower.
The old mower has a zero book value.
The new mower is expected to last 5 years.
The Thomsons will follow a 5-year MACRS recovery period for the new mower.
Depreciable value of the new mower is \$1,800.
They are subject to a 40% tax rate.
The new mower is expected to be more fuel efficient, maneuverable, and durable
than previous models and can result in reduced operating expenses of \$500 per year.
The Thomsons will buy a maintenance contract that calls for annual payments
of \$120.

Create an incremental operating cash flow statement for the replacement of Richard
and Linda’s John Deere riding mower. Show the incremental operating cash flow for
the next 6 years.

P11-23

campaign, sales are expected to rise to the levels shown in the accompanying table for each of the next 5 years; cost of goods sold is expected to remain at 80% of sales; general and administrative expense (exclusive of any marketing campaign outlays) is expected to remain at 10% of sales; and annual depreciation expense is expected to remain at \$500,000. Assuming a 40% tax rate, find the relevant cash flows over the next 5 years associated with the proposed marketing campaign.

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