Question
McGill Golf has decided to sell a new line of golf clubs. The clubs will sell for $ 750 per set and have variable cost
McGill Golf has decided to sell a new line of golf clubs. The clubs will sell for $ 750 per set and have variable
cost of $ 360 per set. The company has spent $ 150,000 for a marketing study that determined the company
will sell 48,000 sets per year for 7 years. The marketing study also determined that the company will lose sales
of 13,000 sets of its high-priced clubs. The high-priced clubs sell for $ 1,200 and have a variable cost of $ 710.
The company will also increase sales of its cheap clubs by 10,000 sets. The cheap clubs sell for $ 420 and have
variable costs of $ 205 per set. The fixed costs each year will be $ 7,500,000. The company has also spent $
1,000,000 on research and development for the new clubs. The plant and equipment required will cost $
18,900,000 and will be depreciated on a straight line basis for tax purposes. The new clubs will also require an
increase in net working capital of $ 875,000 in year 0. The tax rate is 40% and the weighted cost of capital is
14%. Calculate the payback, the adjusted payback, the IRR, and the NPV. Would you recommend acceptance
of the project? On what basis?
Provide supporting calculations for full credit.
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