Louisville Slugger Case Study

Improved Essays
Register to read the introduction… What began as a wooden bat company has evolved into a company that manufactures both wood and aluminum bats, gloves, helmets, and other accessories. This evolution is largely due to an increase in performance technology, particularly in the production of aluminum bats. Since the company’s beginning, Louisville Slugger has always employed the most powerful technology available in the business mostly because of its strong research and development teams and significant investments in production …show more content…
The company will continue to manufacture the Warrior for three more years because the company still expects to profit from sales of the Warrior and the company estimates that the Warrior’s technology will not be outdated until that time. If Louisville Slugger introduces the Exogrid, sales of the Warrior will fall by 17,000 bats per year. Further, the current cost of the Warrior at $200 will have to be lowered to a discounted rate of $125 per bat. Variable costs of the Warrior are $70 each and the fixed costs for the Warrior are $2,150,000 per year. If Louisville Slugger does not introduce the Exogrid, the Warrior’s estimated sales will be 75,000, 65,000, and 45,000 bats for the next three years, respectively. Net working capital for the Exogrid will be 20 percent of sales and will occur in each individual cash flow year. For example, there will be no initial outlay for net working capital and changes in net working capital will first occur in Year 1 with its respective …show more content…
The cost of the equipment to manufacture the Exogrid is $25 million and will be depreciated on a seven-year MACRS schedule. The value of the equipment used to manufacture the Exogrid in six years will be $3.5 million. Louisville Slugger has a 40 percent corporate tax rate and a 12 percent required return. You are employed in Louisville Slugger’s finance department and are head of the capital budgeting team. The CEO of Louisville Slugger has asked you to prepare a brief report on the profitability of producing the Exogrid. In particular, the CEO would like to know the net present value, internal rate of return, profitability index, payback period, and discounted payback period of the Exogrid capital budgeting

Related Documents

  • Brilliant Essays

    The cost of sales for that year would be £210,000. They might decide to resell the candles to customer for £8 per candle. If the business managed to sell all 70,000 candles, then their turnover would be £560,000. To calculate the gross profit they would take the costs of sales (£210,000) away from the turnover (560,000) which would be £350,000. The trading account would be set up as shown below: Preets Candle Company trading account for year ending 30th September…

    • 1478 Words
    • 6 Pages
    Brilliant Essays
  • Improved Essays

    Orion Corporation Case

    • 2651 Words
    • 11 Pages

    If Treads decides to replace the old machine, Picco Company has offered to purchase the old machine for $60,000. The old machine would have no salvage value in five years. The new machine would be acquired from Hillcrest Industries for $1,000,000 in cash. The new machine has an expected useful life of five years with no salvage value. Due to the increased efficiency of the new machine, estimated annual cash savings of $300,000 would be generated.…

    • 2651 Words
    • 11 Pages
    Improved Essays
  • Improved Essays

    Incremental labor costs are $90,000 per year, maintenance costs are $25,000 per year and incremental overheads are anticipated to be $50,000. You must calculate depreciation. Miscellaneous costs aside from depreciation are $42,000 per year. This project has a life of 10 years and they estimate salvage value of the equipment at $160,000. The cost of capital for Gordon is normally 10% but this particular project is out of their normal expertise and they would like to add a 3% risk premium.…

    • 767 Words
    • 4 Pages
    Improved Essays
  • Decent Essays

    Acme Products Case Study

    • 16251 Words
    • 66 Pages

    The new machine has a purchase price of $1.2 million, an estimated useful life of five years, and an estimated salvage value in five years of $20,000. Additional costs of installation will be $25,000. It is expected to economize on operating costs and to reduce the number of defective bottles. In total, an annual saving of $250,000 will be realized if the new machine is installed. The new machine will require an additional $15,000 in inventory (spare parts).…

    • 16251 Words
    • 66 Pages
    Decent Essays
  • Superior Essays

    If you bought a 1965 Mustang for $25,000 with an annual inflation rate of 8 percent, it would take around 9 years for the car’s worth to double based on the Rule of 72. d. If your grandmother gave you her wedding ring, it was appraised at $1,200, and the annual inflation rate was 6 percent, how many years would it be before it was worth $2,400? If your grandmother gave you her wedding ring, which was appraised at $1,200 and it had an annual inflation rate of 6 percent; it would take about 12 years for the ring’s worth to become $2,400. e. If you bought an antique lamp for $3,000 and the inflation rate was 3 percent, how many years would it be before your…

    • 1506 Words
    • 7 Pages
    Superior Essays
  • Great Essays

    Currently, Mihocko produces approximately 95 tons of particulate emissions per year. Capturing that amount in the new housing and shipping it off would simply make the particulate emissions someone else’s problem. Lastly, $300,000 in new equipment would add to the cost and time required to keep the equipment running. $50,000 per year may not truly cover all operating costs. A third strategy would be an investment in new production equipment that would essentially eliminate emissions.…

    • 1267 Words
    • 6 Pages
    Great Essays
  • Improved Essays

    So you have 370,000 to pay depreciation and taxes. So depr will be 250K leaving taxes on 200K of 120K 3.7-Depr=(5.5-Depr)*40% 3.7-2.5=(5.5-2.5)*40% (2.0)*40%=1.2 Proof= 5,500,000 EBITDA (2,000,000) Interest (2,500.000)Depr & Amortization 3,000,000…

    • 1583 Words
    • 7 Pages
    Improved Essays
  • Improved Essays

    Using net present value calculations, determine which has a higher ROI: Buying a Chevrolet Impala today for $30,000, putting $15,000 down and taking a six-year loan for the rest at 5%. $48,487 = 72-1 * 30,000 / 1.05 to the 72nd power – 15,000 or Leasing the Impala for 4 years at $329 a month. Since $4000 is due when the lease is signed, the rate will equal to 5%. $-4,822 = 72-1 * 30,000 /1.05 to the 72nd power – 4,000 In the above calculations the company will lose money if they opt to lease the vehicle. The company will have a return on investment of 0.61 if they choose to buy the vehicle.…

    • 789 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    In a Business Week article (October 31, 2005), options were examined for a 72 year old male with a life expectancy of 8 years and a $1 million dollar life insurance policy with an annual premium of $37,000. The four options were: 1) Cash the policy today for $100,000. 2) Sell the policy in a viatical settlement for $275,000. 3) Reduce the death benefit to $375,000, which would keep the policy in force for 12 years without premium payments. 4) Stop paying premiums and don’t reduce the death benefit.…

    • 24287 Words
    • 98 Pages
    Improved Essays
  • Improved Essays

    I will have a one-time fee of .20 for the four-month listing. If I am estimating this business out for 5 years, that is a fee of $3.00. These expenses are all fixed as my price is set, even though half of the fees are a percentage (so usually the percentage costs would be variable). Again, I also don’t expect to sell more than 1 pair at a time. So my profit would be $2.96 per pair of earrings.…

    • 761 Words
    • 4 Pages
    Improved Essays