McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $895 per set and have a variable cost of $431 per set. The company has spent $200,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,600 sets per year of its high-priced clubs. The high-priced clubs sell at $1,325 and have variable costs of $645. The company will also increase sales of its cheap clubs by 10,800 sets per year. The cheap clubs sell for $340 and have variable costs of $141 per set. The fixed costs each year will be $14,350,000. The company has also spent $1,500,000 on research and development for the new clubs. The plant and equipment required will cost $43,700,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,625,000 that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 11 percent. Calculate the payback period, the NPV, and the IRR. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent. Payback period 4.00 years Net present value $ 57,093,399.93 Internal rate of return 41.58%
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $895 per set and have a variable cost of $431 per set. The company has spent $200,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,600 sets per year of its high-priced clubs. The high-priced clubs sell at $1,325 and have variable costs of $645. The company will also increase sales of its cheap clubs by 10,800 sets per year. The cheap clubs sell for $340 and have variable costs of $141 per set. The fixed costs each year will be $14,350,000. The company has also spent $1,500,000 on research and development for the new clubs. The plant and equipment required will cost $43,700,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,625,000 that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 11 percent. Calculate the payback period, the NPV, and the IRR. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent. Payback period 4.00 years Net present value $ 57,093,399.93 Internal rate of return 41.58%
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 1PA: Artisan Metalworks has a bottleneck in their production that occurs within the engraving department....
Related questions
Question
Vijay
Transcribed Image Text:McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $895 per set and have a variable cost of $431 per set.
The company has spent $200,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years.
The marketing study also determined that the company will lose sales of 8,600 sets per year of its high-priced clubs. The high-priced
clubs sell at $1,325 and have variable costs of $645. The company will also increase sales of its cheap clubs by 10,800 sets per year.
The cheap clubs sell for $340 and have variable costs of $141 per set. The fixed costs each year will be $14,350,000. The company has
also spent $1,500,000 on research and development for the new clubs. The plant and equipment required will cost $43,700,000 and
will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,625,000 that will be
returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 11 percent. Calculate the payback period, the
NPV, and the IRR.
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a
percent.
Payback period
4.00 years
Net present value
$
57,093,399.93
Internal rate of return
41.58%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Essentials Of Business Analytics
Statistics
ISBN:
9781285187273
Author:
Camm, Jeff.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Essentials Of Business Analytics
Statistics
ISBN:
9781285187273
Author:
Camm, Jeff.
Publisher:
Cengage Learning,
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning