McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for
Question:
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $675 per set and have a variable cost of $340 per set. The company has spent $150,000 for a marketing study that determined the company will sell 70,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,000 sets per year of its high-priced clubs. The high priced clubs sell at $1,100 and have variable costs of $550. The company will also increase sales of its cheap clubs by 12,000 sets per year. The cheap clubs sell for $300 and have variable costs of $100 per set. The fixed costs each year will be $10,800,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $19,800,000 and will be depreciated on a straight line basis. The new clubs will also require an increase in net working capital of $1,500,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 14 percent. Calculate the payback period, the NPV, and The IRR.
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Essentials Of Corporate Finance
ISBN: 9780073405131
6th Edition
Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan