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McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $825 per set and have a variable cost of $395 per set. The company has spent $150,000 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 10,000 sets of its high-price clubs. The price clubs sell at $1,100 and have variable costs of $650. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $410 and have variable cost of $185 per set. The fixed costs each year will be $9,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $29,400,000 and will be depreciated on a straight-line basis. The new clubs will also require increase in new working capital of $1,400,000 that will be returned at the end of the project. The capital rate is 40 percent, and the cost of capital is 10 percent. find out and show the work for the payback period, the NPV, and the IRR.

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  • Category:- Basic Finance
  • Reference No.:- M944107

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