McGilla Golf is evaluating a new golf club. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $620. The company will also increase sales of its cheap clubs by 15,000 sets. The cheap clubs sell for $400 and have variable costs of $210 per set. The fixed costs each year will be $9,300,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $29,400,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,400,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 14 percent.

Question 1

Build an active spreadsheet that calcualtes the NPV when sales quantity change up and down by 20%. start by creating an input section.

Question 2

Create an active spreadsheet that calculates the NPV when variable cost change up and dwon by 30%

Question 3

add a spinner that shows how the NPV changes when the level of sales change by 1 unit and use the outcome to calculate the sensitivity of NPV to sales quantity

Question 4

Calculate the sensitivity of NPV to unit variable costs.

Question 5

Calculate the accounting breakeven quantity in every case.

Question 6

Calculate the financial breakeven quantity in every case.

Question 7

Calculate the cash breakeven quantity in every case.

Question 8

In light of this analysis, explain whether this project should be undertaken.