Callaway Golf

In: Business and Management

Submitted By muratkilicoglu
Words 309
Pages 2
1) One of the primary benefits of FX-1 product is to help respond to market demand which requires Callaway to come up with a revolutionary product. With FX-1, Callaway will have the chance to pair it with FT-i driver (existing product) and attract the attention of the golfers who seek ultimate course experience .It will also increase the company's revenues and enable it to gain further market share in a market where consumers report decreasing golfing. On the other hand, the introduction of FX-1 will cannibalize comparable top-end irons in its product portfolio. Additionally, FX-1 will require one-off investments for product development, manufacturing, and pre-marketing.

2) Gross profit margin comparison:

FX-1:

Callaway Golf:

3) Earnings and FCF analysis for FX-1 product are as follows:

4) At discount rate of 10.5% NPV of project FX-1 is USD 910,000 taking into consideration of potential cannibalization. Given that NPV is positive, the firm should take on the project.

5) Below is the NPV for 3 different scenarios. The implication here is that assuming that the 3 scenarios are reasonable, the actual project NPV is likely to end between a range of USD -0.6 million and USD 2.66 million.

6) Assuming all other assumptions are fixed at base scenario, project will break-even at the following number of units sold, per-unit wholesale price, and per-unit manufacturing cost value.

7) Because NPV of price reduction of 10% and sales increase of 30% has a lower NPV (USD 0.57 million) vs. NPV of the regular project, we should not reflect the recommendation.

8) Because the expected value of the three scenarios, given that the likelihood of each situation is equal, is USD 0.99 million, we should go with the project (table is in USD…...

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