Chapter 11 3. Scenario Analysis (L02] Stinnett Transmissions, Inc., has the following estimates for its new gear assembly project: Price = $1,220 per unit; variable costs = $380 per unit; fixed costs = $3.75 million; quantity = 90,000 units. Suppose the company believes all of its estimates are accurate only to within + 15 percent. What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst-case scenario? 20. Project Analysis (L01, 2] McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $815 per set and have a variable cost of $365 per set. The company has spent $150,000 for a marketing study that determined the company will sell 55,000 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 $1,345 and have variable costs of $730. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $445 and have variable costs of $210 per set. The fixed costs each year will be $9.45 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $39.2 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.85 million that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 10 percent. Calculate the NPV. 21. Scenario Analysis (L02] In the previous problem, you feel that the values are accurate to within only + 10 percent. What are Page 385 the best-case and worst-case NPVs? Hint. The price and variable costs for the two existing sets of clubs are known with certainty, only the sales gained or lost are uncertain