Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $831 per set and have a variable cost of $355 per set. The company has spent $101138 for a marketing study that determined the company will sell 5448 sets per year for seven years. The marketing study also determined that the company will lose sales of 954 sets of its high-priced clubs. The high-priced clubs sell at $1120 and have variable costs of $693. The company will also increase sales of its cheap clubs by 1006 sets. The cheap clubs sell for $469 and have variable costs of $243 per set. The fixed costs each year will be $958972. The company has also spent $100271 on research and development for the new clubs. The plant and equipment required will cost $2842708 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $128658 that will be returned at the end of the project. The tax rate is 29 percent, and the cost of capital is 8 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold? [Hint: Think of this as, "How much will NPV change if I sell one more set of new clubs each year?"] (Do not round intermediate calculations and round your final answer to the nearest dollar. Omit the "$" sign and commas in your response. For example, $12,345.6789 should be entered as 12346.)

Answer 1