McGilla Golf has decided to sell a new line of golf clubs. Theclubs will sell for $750 per set and have a variable cost of $350per set. The company has spent $145,000 for a marketing study thatdetermined the company will sell 57,000 sets per year for sevenyears. The marketing study also determined that the company willlose sales of 9,000 sets of its high-priced clubs. The high-pricedclubs sell at $1,050 and have variable costs of $650. The companywill also increase sales of its cheap clubs by 10,500 sets. Thecheap clubs sell for $390 and have variable costs of $205 per set.The fixed costs each year will be $9,050,000. The company has alsospent $1,060,000 on research and development for the new clubs. Theplant and equipment required will cost $28,350,000 and will bedepreciated on a straight-line basis. The new clubs will alsorequire an increase in net working capital of $1,250,000 that willbe returned at the end of the project. The tax rate is 40 percent,and the cost of capital is 10 percent.
Suppose you feel that the values are accurate to within only ±10percent. What are the best-case and worst-case NPVs? (Hint: Theprice and variable costs for the two existing sets of clubs areknown with certainty; only the sales gained or lost are uncertain.)(A negative answer should be indicated by a minus sign. Donot round intermediate calculations and round your answers to 2decimal places, e.g., 32.16.)
NPV Best-case $ Worst-case $
McGilla Golf has decided to sell a new line of golf clubs. Theclubs will sell for $750 per set and have a variable cost of $350per set. The company has spent $145,000 for a marketing study thatdetermined the company will sell 57,000 sets per year for sevenyears. The marketing study also determined that the company willlose sales of 9,000 sets of its high-priced clubs. The high-pricedclubs sell at $1,050 and have variable costs of $650. The companywill also increase sales of its cheap clubs by 10,500 sets. Thecheap clubs sell for $390 and have variable costs of $205 per set.The fixed costs each year will be $9,050,000. The company has alsospent $1,060,000 on research and development for the new clubs. Theplant and equipment required will cost $28,350,000 and will bedepreciated on a straight-line basis. The new clubs will alsorequire an increase in net working capital of $1,250,000 that willbe returned at the end of the project. The tax rate is 40 percent,and the cost of capital is 10 percent. |
Suppose you feel that the values are accurate to within only ±10percent. What are the best-case and worst-case NPVs? (Hint: Theprice and variable costs for the two existing sets of clubs areknown with certainty; only the sales gained or lost are uncertain.)(A negative answer should be indicated by a minus sign. Donot round intermediate calculations and round your answers to 2decimal places, e.g., 32.16.) |
| NPV | ||
| Best-case | $ | |
| Worst-case | $ | |
Related questions
McGilla Golf has decided to sell a new line of golf clubs. Theclubs will sell for $800 per set and have a variable cost of $400per set. The company has spent $151,000 for a marketing study thatdetermined the company will sell 78,000 sets per year for sevenyears. The marketing study also determined that the company willlose sales of 19,000 sets of its high-priced clubs. The high-pricedclubs sell at $1,200 and have variable costs of $700. The companywill also increase sales of its cheap clubs by 10,000 sets. Thecheap clubs sell for $400 and have variable costs of $200 per set.The fixed costs each year will be $10,080,000. The company has alsospent $1,411,000 on research and development for the new clubs. Theplant and equipment required will cost $25,200,000 and will bedepreciated on a straight-line basis. The new clubs will alsorequire an increase in net working capital of $1,354,000 that willbe returned at the end of the project. The tax rate is 36 percent,and the cost of capital is 14 percent. |
The payback period is years (Round youranswer to 3 decimal places. (e.g., 32.161)), the NPV is $(Negative amount should be indicated by a minus sign. Donot include the dollar sign ($). Round your answerto the nearest whole dollar amount. (e.g., 32)), and theIRR is percent. (Do not include the percent sign(%). Round your answer to 2 decimal places. (e.g.,32.16)) |
