1. Mundell Golf has decided to sell a new line of golf club. The clubs will sell for $700 per set and have a variable cost of 75% of revenues per set. The company has spent $250,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $45/dozen and have a variable cost of $15. The company expects to sell 100,000 boxes of a dozen balls. The fixed costs each year will be $15,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $20,500,000 and will be depreciated using the MACRS seven-year schedule. The new clubs will also require an increase in net working capital of $1,800,000 that will be returned at the end of the project. The tax rate is 25 percent. Information for computing the cost of capital is given in the table below.

1. Calculate the payback period, the NPV and the IRR.
2. Test the sensitivity of NPV and IRR to a $100 decrease in the selling price of the clubs.
3. Test the sensitivity of NPV and IRR to an increase in the variable cost percentage to 80 % of revenues.

Book Value of Debt	$2,500,000,000
Market Value of Debt	$2,750,000,000
Book Value of Equity	$3,500,000,000
Market Value of Equity	$4,500,000,000
Dividend Mundell has just paid	$2.75
Current stock price	$25.62
Growth rate of dividends	6%
Bond information	Coupon rate = 5%, maturity = 20 years, maturity value =$1,000 and the current price is 1,117.63. Assume interest is paid semiannually.