Question
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $809 per set and have a variable cost
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $809 per set and have a variable cost of $393 per set. The company has spent $111997 for a marketing study that determined the company will sell 5209 sets per year for seven years. The marketing study also determined that the company will lose sales of 965 sets of its high-priced clubs. The high-priced clubs sell at $1112 and have variable costs of $711. The company will also increase sales of its cheap clubs by 1052 sets. The cheap clubs sell for $454 and have variable costs of $208 per set. The fixed costs each year will be $910695. The company has also spent $118736 on research and development for the new clubs. The plant and equipment required will cost $2837340 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $131027 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 8 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold?
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