5. 20.

Project analysis [LO 11.1, 11.2] Bermagui Golf has decided to sell a new line of golf clubs. The clubs will sell for $845 per set and have a variable cost of $405 per set. The company has spent $150 000 for a marketing study that determined the company will sell 60 000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10 000 sets of its high-priced clubs. The high-priced clubs sell at $1 175 and have variable costs of $620. The company will also increase sales of its cheap clubs by 12 000 sets. The cheap clubs sell for $435 and have variable costs of $200 per set. The fixed costs each year will be $9.75 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $37.1 million and will be depreciated on a straight-line basis over the project life for tax purposes. The new clubs will also require an increase in net working capital of $1.7 million that will be returned at the end of the project.

The tax rate is 30 per cent, and the cost of capital is 10 per cent.

Calculate the payback period, the NPV and the IRR.