Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $870 per set and have a variable cost of $430 per set. The company has spent $350,000 for a marketing study that determined the company will sell 70,900 sets per year for seven years. The marketing study also determined that the company will lose sales of 14,000 sets of its high-priced clubs. The high-priced clubs sell at $1,240 and have variable costs of $700. The company will also increase sales of its cheap clubs by 16,000 sets. The cheap clubs sell for $460 and have variable costs of $250 per set. The fixed costs each year will be $10,800,000. The company has also spent $3,000,000 on research and development for the new clubs. The plant and equipment required will cost $39,300,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,700,000 that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 13 percent.

  

a.	Calculate the payback period. (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
b.	Calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	Calculate the IRR. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

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projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum Cut AC Wrap Text General Calibri 11 E Copy Fill Merge & Center Paste в IU* +.0 .00 Conditional Format Cell Insert Delete Format Sort & Find & % .00 0 Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fr NO919 Formula Bar NO NY NN NP NO NR NS NU NV NW NX NZ OA 919 920 CALCULATION OF CFAT 921 SALES SP UNITS TОTAL 922 NEW CLUBS 870 70900 61683000 923 EXPENSIVE CLUBS 1240 -14000 -17360000 460 16000 924 CHEAP CLUBS 7360000 925 51683000 926 LESS VARIABLE COSTS VC UNITS TOTAL 927 430 70900 NEW CLUBS 30487000 928 700 EXPENSIVE CLUBS -14000 -9800000 250 16000 929 CHEAP CLUBS 4000000 930 24687000 931 932 LESS FIXED COSTS 10800000 [39300000/7] 933 LESS DEPRECIATION 5614285.71 934 ЕBT 10581714.29 935 ТАX 2645428.57 936 NET INCOME 7936285.71 [39300000/7] 937 ADD DEPRECIATION 5614285.71 938 CFAT 13550571.43 939 STEIN indiffEPS EBIT GOLFD EAC MACRS MI-np-ir REPLACEMENTS HPR GMAM NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAIT LEASE STRAIGHT LINE III ferences: DX15 II Rea 120% EEE WA 07:18 tENG 28-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Insert Delete Format Paste B I U +.0 .00 Conditional Format Cell Sort & Find & % .00 0 Format Painter Clear Filter Select Formatting as Table Styles Editing Clipboard Font Alignment Number Styles Cells fr NO939 NT NY NN NO NP NQ NR NS NU NV NW NX NZ OA 939 940 AT 13% PV OF 941 CFAT PV FACTOR YEAR CUMULATIVE CFAT CFAT A*B 942 A В 943 -43000000 -39300000-3700000] 0 -43000000.00 1.0000 -43000000.00 944 1 13550571.43 -29449428.57 0.8850 11991656.13 945 2 13550571.43 -15898857.14 0.7831 10612085.07 946 13550571.43 0.6931 3 -2348285.71 9391225.73 947 11202285.71 0.6133 4 13550571.43 8310819.23 948 5 13550571.43 24752857.14 0.5428 7354707.28 949 13550571.43 38303428.57 0.4803 6 6508590.51 17250571.43 (CFAT WORKING CAPITAL RECOVERY) 950 7 55554000.00 0.4251 7332539.00 951 NPV 18501622.95 952 AS CFAT ARE SAME EVERY YEAR AND WE ARE ABLE TO RECOVER AMOUNT IN 4TH YEAR 3 CCFAT3/CFAT4 953 PAYBACK PERIOD PAYBACK PERIOD 3(2348285.71/13550571.43) (IGNORE NEGATIVE SIGN OF CCFAT3) 954 ANS 1 3.173 YEARS 955 956 ANS 2 NPV 18501622.95 957 IRR(NP943:NP950)] 958 ANS 3 25.55% IRR 959 STEIN indiffEPS EBIT GOLFD NPV RELEVANT MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS BETA LEVERED REPLACEMENT BOND OPTION TO WAIT LEASE STRAIGHT LINE III ferences: DX15 II Rea 120% EEE WA 07:18 tENG 28-11-2019