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McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $791 per set and have a variable cost of $371 per set. The company has spent $143596 for a marketing study that determined the company will sell 5224 sets per year for seven years. The marketing study also determined that the company will lose sales of 943 sets of its high-priced clubs. The high-priced clubs sell at $1033 and have variable costs of $672. The company will also increase sales of its cheap clubs by 1101 sets. The cheap clubs sell for $452 and have variable costs of $250 per set. The fixed costs each year will be $955377. The company has also spent $106094 on research and development for the new clubs. The plant and equipment required will cost $2871593 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $130628 that will be returned at the end of the project. The tax rate is 29 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to changes in the price of the new clubs?

[Hint: Think of this as, "How much will NPV change if I increase the price of the new clubs by $1?"]

Financial Management, Finance

  • Category:- Financial Management
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