Question
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $755 per set and have a variable cost
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $755 per set and have a variable cost of $393 per set. The company has spent $156430 for a marketing study that determined the company will sell 5391 sets per year for seven years. The marketing study also determined that the company will lose sales of 968 sets of its high-priced clubs. The high-priced clubs sell at $1055 and have variable costs of $740. The company will also increase sales of its cheap clubs by 1178 sets. The cheap clubs sell for $475 and have variable costs of $245 per set. The fixed costs each year will be $950530. The company has also spent $100055 on research and development for the new clubs. The plant and equipment required will cost $2899749 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $129591 that will be returned at the end of the project. The tax rate is 34 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to changes in the price of the new clubs?
[Hint: Think of this as, "How much will NPV change if I increase the price of the new clubs by $1?"]
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