1.

We are evaluating a project that costs $1,675,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 91,000 units per year. Price per unit is $35.95, variable cost per unit is $21.40, and fixed costs are $775,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.

Required:

Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within 10 percent. Calculate the best-case and worst-case NPV figures. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

	NPV
Best-case	$
Worst-case	$

2

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $750 per set and have a variable cost of $360 per set. The company has spent $150,000 for a marketing study that determined the company will sell 72,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,500 sets per year of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $540. The company will also increase sales of its cheap clubs by 11,000 sets per year. The cheap clubs sell for $360 and have variable costs of $125 per set. The fixed costs each year will be $13,900,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,700,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,100,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 14 percent.

Required:

Calculate the payback period, the NPV, and the IRR. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Enter the IRR as a percentage.)

Payback period	years
Net present value	$

3

A proposed cost-saving device has an installed cost of $585,000. The device will be used in a five-year project but is classified as three-year MACRS (MACRS Table) property for tax purposes. The required initial net working capital investment is $45,000, the marginal tax rate is 35 percent, and the project discount rate is 12 percent. The device has an estimated Year 5 salvage value of $(expression error).

Required:

What level of pretax cost savings do we require for this project to be profitable? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Pretax savings

$