Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $846 per set and have a variable cost of $397 per set. The company has spent $127064 for a marketing study that determined the company will sell 5458 sets per year for seven years. The marketing study also determined that the company will lose sales of 940 sets of its high-priced clubs. The high-priced clubs sell at $1122 and have variable costs of $729. The company will also increase sales of its cheap clubs by 1000 sets. The cheap clubs sell for $464 and have variable costs of $242 per set. The fixed costs each year will be $924967. The company has also spent $110842 on research and development for the new clubs. The plant and equipment required will cost $2822049 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $125400 that will be returned at the end of the project. The tax rate is 30 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold? [Hint: Think of this as, "How much will NPV change if I sell one more set of new clubs each year?"] (Do not round intermediate calculations and round your final answer to the nearest dollar. Omit the "$" sign and commas in your response. For example, $12,345.6789 should be entered as 12346.)

Answer 1