Question

McGilla Golf is evaluating a new golf club. The clubs will sell for $1,070 per set and have a variable cost of $485 per set. The company has spent $175,000 for a marketing study that determined the company will sell 54,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,200 sets of its high-priced clubs. The high-priced clubs sell at $1,570 and have variable costs of $700. The company also will increase sales of its cheap clubs by 12,800 sets. The cheap clubs sell for $485 and have variable costs of $215 per set. The fixed costs each year will be $10,000,000. The company has also spent $1,350,000 on research and development for the new clubs. The plant and equipment required will cost $33,600,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will also require an increase in net working capital of $2,740,000 that will be returned at the end of the project. The tax rate is 24 percent and the cost of capital is 14 percent. What is the senstivity of the NPV to changes in the price and quantity sold of the new clubs? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

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