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 marketing study determined that the company will sell 55,000 sets per year for seven years.

The fixed costs each year will be $9,450,000. The plant and equipment required will cost $39,200,000 and will be depreciated on a straightline basis. Theywill be worthless when the project ends in sevenyears. The new clubs will also require the net working capital of $1,850,000 that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 10 percent.

a. Calculate the NPV.

b. If the price of the new club is changed to $825 per set, what is the NPV?

c. McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs, i.e., change of NPV/change of P.