McGilla Golf (see Problem 14) would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. What is the sensitivity of the NPV to each of these variables?

Data from Problem 14

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $850 per set and have a variable cost of $445 per set. The company has spent $150,000 for a marketing study that determined the company will sell 45,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high priced clubs sell at $1,300 and have variable costs of $720. The company will also increase sales of its cheap clubs by 10,000 sets. The cheap clubs sell for $415 and have variable costs of $185 per set. The fixed costs each year will be $6.2 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $14.5 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2.1 million that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 14 percent. Calculate the payback period, the NPV, and the IRR.