Question
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $840 per set and have a variable cost
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $840 per set and have a variable cost of $417 per set. The company has spent $169,187 for a marketing study that determined the company will sell 5,522 sets per year for seven years. The marketing study also determined that the company will lose sales of 921 sets of its high-priced clubs. The high-priced clubs sell at $1,044 and have variable costs of $699. The company will also increase sales of its cheap clubs by 1,142 sets. The cheap clubs sell for $426 and have variable costs of $202 per set. The fixed costs each year will be $870,002. The company has also spent $104,683 on research and development for the new clubs. The plant and equipment required will cost $2,825,383 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $129,111 that will be returned at the end of the project. The tax rate is 30 percent, and the cost of capital is 8 percent. What is the sensitivity of the NPV to changes in the price of the new clubs?
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