Baird Golf has decided to sell a new line of golf clubs. The clubs will sell for $715 per set and have a variable cost of $385 per set. The company has spent $150,000 for a marketing study that determined the company will sell 75,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,150 and have variable costs of $620. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $425 and have variable costs of $195 per set. The fixed costs each year will be $9,400,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $30,100,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,400,000 that will be returned at the end of the project. The tax rate is 40%, and the cost of capital is 10%. Suppose you feel that the values are accurate to within only +10%. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty, only the sales gained or lost are uncertain.) (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) Best-case Worst-case NPV
Baird Golf has decided to sell a new line of golf clubs. The clubs will sell for $715 per set and have a variable cost of $385 per set. The company has spent $150,000 for a marketing study that determined the company will sell 75,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,150 and have variable costs of $620. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $425 and have variable costs of $195 per set. The fixed costs each year will be $9,400,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $30,100,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,400,000 that will be returned at the end of the project. The tax rate is 40%, and the cost of capital is 10%. Suppose you feel that the values are accurate to within only +10%. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty, only the sales gained or lost are uncertain.) (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) Best-case Worst-case NPV
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Baird Golf has decided to sell a new line of golf clubs. The clubs will sell for $715 per set and have a variable cost of $385 per set. The
company has spent $150,000 for a marketing study that determined the company will sell 75,000 sets per year for seven years. The
marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at
$1,150 and have variable costs of $620. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell
for $425 and have variable costs of $195 per set. The fixed costs each year will be $9,400,000. The company has also spent
$1,000,000 on research and development for the new clubs. The plant and equipment required will cost $30100,000 and will be
depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,400,000 that will be
returned at the end of the project. The tax rate is 40%, and the cost of capital is 10%.
Suppose you feel that the values are accurate to within only ±10%. What are the best-case and worst-case NPVs? (Hint: The price and
variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (Negative
answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answers to 2 decimal
places. Omit $ sign in your response.)
Best-case
Worst-case
NPV
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