Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 $800 per set and have a variable cost of $360 per set. The company has spent $210,000 for a marketing study that determined the company will sell 66,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 11,200 sets of its high-priced clubs. The high-priced clubs sell at $1,170 and have variable costs of $630. The company will also increase sales of its cheap clubs by 13,200 sets. The cheap clubs sell for $390 and have variable costs of $180 per set. The fixed costs each year will be $10,100,000. The company has also spent $1,600,000 on research and development for the new clubs. The plant and equipment required will cost $37,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,300,000 that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 9 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.)image text in transcribed

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 $800 per set and have a variable cost of $360 per set. The company has spent $210,000 for a marketing study that determined the company will sell 66,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 11,200 sets of its high-priced clubs. The high-priced clubs sell at $1,170 and have variable costs of $630. The company will also increase sales of its cheap clubs by 13,200 sets. The cheap clubs sell for $390 and have variable costs of $180 per set. The fixed costs each year will be $10,100,000. The company has also spent $1,600,000 on research and development for the new clubs. The plant and equipment required will cost $37,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,300,000 that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 9 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.) ANPVIAP ANPVIA

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

A Practical Guide To Quantitative Finance Interviews

Authors: Xinfeng Zhou

1st Edition

1735028800, 978-1735028804

More Books

Students also viewed these Finance questions