Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $819 per set and have a variable cost of $381 per set. The company has spent $138,717 for a marketing study that determined the company will sell 5,357 sets per year for seven years. The marketing study also determined that the company will lose sales of 946 sets of its high-priced clubs. The high-priced clubs sell at $1,046 and have variable costs of $650. The company will also increase sales of its cheap clubs by 1,179 sets. The cheap clubs sell for $404 and have variable costs of $206 per set. The fixed costs each year will be $952,477. The company has also spent $106,025 on research and development for the new clubs. The plant and equipment required will cost $2,826,899 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $126,726 that will be returned at the end of the project. The tax rate is 30 percent, and the cost of capital is 7 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold?

Answer 1