Question
McCabe Golf Products has decided to sell a new line of medium-priced golf clubs. The clubs will sell for $930 per set and have a
McCabe Golf Products has decided to sell a new line of medium-priced golf clubs. The clubs will sell for $930 per set and have a variable cost of $420 per set. The company spent $50,000 doing a marketing study that indicated the company could sell 50,000 sets per year for seven years. Fixed costs will be $9.2 Million per year; the required investment for plant and equipment will be $28.42 Million and will be depreciated down to zero over the life of the project. The company spent $1M on research and development for the medium-priced clubs. Finally, a working capital investment (which will be returned at the completion of the project) of $2.1 Million is required. The tax rate is 21 percent and the required return is 15.5 percent.
You think the unit sales, the variable cost rate and fixed costs are accurate to +/- 13 percent. By how much does the Worst Case NPV differ from the Base Case NPV? State your answer in dollars.
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