McGilla Golf has decided to sell a new line of golf clubs and would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $810 per set and have a variable cost of $410 per set. The company has spent $151,000 for a marketing study that determined the company will sell 55,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,600 sets of its high-priced clubs. The high-priced clubs sell at $1,110 and have variable costs of $710. The company will also increase sales of its cheap clubs by 11,100 sets. The cheap clubs sell for $450 and have variable costs of $235 per set. The fixed costs each year will be $9,110,000. The company has also spent $1,120,000 on research and development for the new clubs. The plant and equipment required will cost $28,770,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,310,000 that will be returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to each of these variables? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
McGilla Golf has decided to sell a new line of golf clubs and would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $810 per set and have a variable cost of $410 per set. The company has spent $151,000 for a marketing study that determined the company will sell 55,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,600 sets of its high-priced clubs. The high-priced clubs sell at $1,110 and have variable costs of $710. The company will also increase sales of its cheap clubs by 11,100 sets. The cheap clubs sell for $450 and have variable costs of $235 per set. The fixed costs each year will be $9,110,000. The company has also spent $1,120,000 on research and development for the new clubs. The plant and equipment required will cost $28,770,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,310,000 that will be returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to each of these variables? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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
Problem 1PS
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Transcribed Image Text:McGilla Golf has decided to sell a new line of golf clubs and would like to know the
sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs
sold. The clubs will sell for $810 per set and have a variable cost of $410 per set. The
company has spent $151,000 for a marketing study that determined the company will sell
55,000 sets per year for seven years. The marketing study also determined that the
company will lose sales of 9,600 sets of its high-priced clubs. The high-priced clubs sell
at $1,110 and have variable costs of $710. The company will also increase sales of its
cheap clubs by 11,100 sets. The cheap clubs sell for $450 and have variable costs of
$235 per set. The fixed costs each year will be $9,110,000. The company has also spent
$1,120,000 on research and development for the new clubs. The plant and equipment
required will cost $28,770,000 and will be depreciated on a straight-line basis. The new
clubs will also require an increase in net working capital of $1,310,000 that will be
returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 10
percent. What is the sensitivity of the NPV to each of these variables? (Do not round
intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
ANPV/AP
ANPV/AQ
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