PRIMA Golf has decided to sell a new line of golf clubs. The clubs will sell for $650 per set and have a variable cost of $210 per set. The company has spent $170,000 for a marketing study that determined the company will sell 55,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,300 and have variable costs of $850. The company also will increase sales of its cheap clubs by 8,500 sets. The cheap clubs sell for $410 and have variable costs of $190 per set. The fixed costs each year will be $7,100,000. The company has also spent $1,400,000 on research and development for the new clubs. The plant and equipment required will cost $22,400,000 and will be depreciated on a straight line basis. The new clubs will also require an increase in net working capital of $1,550,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 10 percent. What are the best case and worst case NPVs if the values are accurate to within only 10 percent?

Task assigned:

Critically analyse the significance of forecasting risk be greater for a new project or cost cutting proposal? Why?