McGilla Golf has decided to sell a new line of golf clubs. The company would like to know the sensitivity of NPV to changes in
McGilla Golf has decided to sell a new line of golf clubs. The company would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $785 per set and have a variable cost of $345 per set. The company has spent $180,000 for a marketing study that determined the company will sell 63,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,600 sets of its high-priced clubs. The high-priced clubs sell at $1,155 and have variable costs of $615. The company will also increase sales of its cheap clubs by 12,600 sets. The cheap clubs sell for $375 and have variable costs of $165 per set. The fixed costs each year will be $9,950,000. The company has also spent $1,300,000 on research and development for the new clubs. The plant and equipment required will cost $37,600,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,000,000 that will be returned at the end of the project. The tax rate is 23 percent, and the cost of capital is 11 percent. What is the sensitivity of the NPV to each of these variables? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started