In: Finance
McGilla Golf has decided to sell a new line of golf clubs and
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 $810 per set and have a variable cost of $410 per set. The
company has spent $151,000 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
9,600 sets of its high-priced clubs. The high-priced clubs sell at
$1,110 and have variable costs of $710. The company will also
increase sales of its cheap clubs by 11,100 sets. The cheap clubs
sell for $450 and have variable costs of $235 per set. The fixed
costs each year will be $9,110,000. The company has also spent
$1,120,000 on research and development for the new clubs. The plant
and equipment required will cost $28,770,000 and will be
depreciated on a straight-line basis. The new clubs will also
require an increase in net working capital of $1,310,000 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 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.)
ΔNPV/ΔP | $ | |
ΔNPV/ΔQ | $ | |