Question

McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,050 per set variable cost of $475 per set. The company has spent $170,000 for a marketing study that determined the company will sell 53,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,550 and have variable costs of $680. The company also will increase sales of its cheap clubs by 12,600 sets. The cheap clubs sell for $475 and have variable costs of $205 per set. The fixed costs each year will be $9,900,000. The company has also spent $1,300,000 on research and development for the new clubs. The plant and equipment required will cost $32,900,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2,680,000 that will be returned at the end of the project. The tax rate is 22 percent and the cost of capital is 12 percent. Suppose you feel that the values are accurate to within only +10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Best-case Worst-case

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

X Comments Poste Copy - Cels Edeng AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel PRAVIN MANDORA - File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share X Cut Calibri - 11 -AA === Σ Λαυδunι > 2 Wrap Text General 22 P IXE Ο Fill - Conditional Format as Merge 2 Center - Cell - - % Insert Delcte Format Format Painter 88 Sort & nep BIU - Find A Formatting - Table Styles Clear Filler Select Clipboard For Aignment Söyles 091717 - X fx 2QM QN QOQPQQQRQSQIQUQV 1717 1718 1719 1720 1721 1722 1723 1724 1725 1726 1727 1728 1729 1730 BASE CASE BEST CASE WORST CASE 1731 SALES 53000 58300 10% + 47700 10% - 1732 PRICE 1050 1155 10% + 945 10%- 1733 VC 475 427.5 10%- 522.5 10% + 1734 FIXED COSTS 9900000 8910000 10% - 10890000 10% + 1735 SALES LOST (EXPENSIVE) 10000 9000 10%- 11000 10% + 1736 SALES GAINED (CHEAP) 12600 13860 10% + 11340 10%- 1737 1729 ... REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WAII STEIN indiffEPS EBIT LEASE SLM GOLF IRR MACRS BA... Circular References: 149 # 2 - ► + 140%

PRAVIN MANDORA - X Comments Share IXE Insert Delcte Format Copy - Σ Λαυδunι Fill - Clear Poste Ο Sort & Find Filler Select Cels Edeng QT QU QV Q4 SP AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do X Cut Calibri - 11 -AA === > 2 Wrap Text General 22 P top BIU - - - Format Painter - A. Merge Center - Conditional Format as - % 88 Cell Formatting - Table Styles Clipboard For Aignment Number Söyles 091758 - X fx QM QN QOQPQQ QR OS 1738 1739 CALCULATION OF CFAT BEST CASE 1740 SALES UNITS TOTAL 1741 NEW CLUBS 1155 58300 67336500 1742 EXPENSIVE CLUBS 1550 -9000 -13950000 1743 CHEAP CLUBS 475 13860 6583500 1744 59970000 1745 LESS VARIABLE COSTS UNITS TOTAL 1746 NEW CLUBS 58300 24923250 1747 EXPENSIVE CLUBS 680 -9000 -6120000 1748 CHEAP CLUBS 205 13860 2841300 1749 21644550 1750 1751 LESS FIXED COSTS 8910000 1752 LESS DEPRECIATION (32900000/7] 4700000.00 1753 EBT 24715450.00 1754 TAX 5437399.00 1755 NET INCOME 19278051.00 1756 ADD DEPRECIATION [32900000/7] 4700000.00 1757 CFAT 23978051.00 1758 1759 ... REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WAII Vc 427.5 STEIN indiffEPS EBIT LEASE AT 12% SLM GOLF IRR # DV OF MACRS 2 BA ... - ► + 140% Circular References: 549

PRAVIN MANDORA - X Comments Share Σ Λαυδunι Fill - Clear Poste Copy - Ο Sort & Find Filler Select Insert Delcte Format Cels Edeng OT QUQVQ AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Xcut Calibri -11 - AA === > 2 Wrap Text General stre - BIU- . . Format Painter - A Merge & Center - Conditional Format as - % 58 Cell Formatting - Table Styles Clipboard For Aignment Söyles 091778 - X f x UNITS OM ON I QO QP QQ QR os 1758 1759 1760 YEAR CFAT 1761 A 1762 -35580000 (=-32900000-2680000) 1763 23978051 1764 23978051 1765 23978051 1766 23978051 1767 23978051 1768 23978051 1769 26658051 (CFAT + RECOVERY OF WORKING CAPITAL] 1770 1771 1772 1773 NPV = 75062282.94 1774 1775 1776 1777 CALCULATION OF CFAT WORST CASE 1778 SALES SP UNITS TOTAL 1779 NEW CILIBS 045 4 770015076500 ... REPLACEMENI S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BONDOPTION TO WALL Circular References: 549 AT 12% PV OF PV FACTOR CFAT A*B 1.0000 -35580000.00 0.8929 21408974.11 0.7972 19115155.45 0.7118 17067103.08 0.6355 15238484.90 0.5674 13605790.09 0.5066 12148026.86 0.4523 12058748.45 NPV = 75062282.94 STEIN indiffEPSEBII LEASE SLM GOLF IRR MACRS # 2 BA ... - + 140%

projects (Autosaved) (Autosaved) (Autosaved) - Excel PRAVIN MANDORA - AutoSave @CH H2 File Home Insert X Cut X Comments Review View Help Tell me what you want to do Share Peste o copy- Page Layout Formulas Data Calibri - 11 -AA B I U . L- OA Fom fx === E > PE 2 Wrap Text Merge & Center - Σ Λαυδunι Fill- Clear General - % Number Ο Sort & Find Filter Select Format Painter Clipboard QT1796 - X SR Insert Delete Format Conditional Format as Cell Formatting - Table Styles Söyles Aignment Colt Edeng OM ON 20 QP QQ QR OS QT QU V Q" WORST CASE UNITS 945 1550 475 TOTAL 47700 45076500 - 11000 -17050000 11340 5386500 33413000 TOTAL 47700 24923250 -11000 -7480000 11340 2324700 19767950 Vc UNITS 522.5 680 1776 1777 CALCULATION OF CFAT 1778 SALES 1779 NEW CLUBS 1780 EXPENSIVE CLUBS 1781 CHEAP CLUBS 1782 1783 LESS VARIABLE COSTS 1784 NEW CLUBS 1785 EXPENSIVE CLUBS 1786 CHEAP CLUBS 1787 1788 1789 LESS FIXED COSTS 1790 LESS DEPRECIATION 1791 EBT 1792 TAX 1793 NET INCOME 1794 ADD DEPRECIATION 1795 CFAT 1796 1797 ... REPLACEMENTS HPR GMAM EAC MACRS 205 (32900000/7] 10890000 4700000.00 -1944950 -427889 -1517061 4700000.00 3182939.00 (32900000/7] NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WAII STEIN indiffEPS EBIT LEASE AT 12% SLM GOLF IRR # DV OF MACRS 2 BA ... - ► + 140% Circular References: 149

PRAVIN MANDORA - X Comments Share Σ Λαυδunι Fill- Clear Poste Copy - Ο Sort & Find Filter Select Insert Delct Format Cels Edeng QT QUQV - A AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do X Cut Calibri - 11 -AA === > 2 Wrap Text General Merge & Center - Conditional Format as Format Paintor E - % Cell BTU - 1.0.A Formatting - Table Styles Clipboard Form Aignment Söyles QT1816 - X Box - QM QN QO QP QQ QR Qs 1796 1797 1798 YEAR CFAT 1799 1800 0 -35580000 [=-32900000-2680000) 1801 1 3182939.00 1802 2 3182939.00 1803 3 3182939.00 1804 4 3182939.00 1805 5 3182939.00 1806 6 3182939.00 1807 7 5862939.00 (CFAT + RECOVERY OF WORKING CAPITAL) 1808 1809 1810 1811 NPV = -19841545.43 1812 1813 1814 1815 1816 1917 ... REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WALL AT 12% PV OF PV FACTOR CFAT A*B 1.0000 -35580000.00 0.89292841909.82 0.7972 2537419.48 0.7118 2265553.11 0.63552022815.28 0.5674 1806085.07 0.5066 1612575.95 0.45232652095.86 NPV = -19841545.43 STEIN indiffEPSEBUT LEASE SLM GOLFIER MACRS BA... # 2 - ELD + 140% Circular References: 549

Answer 2

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

X Comments Poste Copy - Cels Edeng AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel PRAVIN MANDORA - File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share X Cut Calibri - 11 -AA === Σ Λαυδunι > 2 Wrap Text General 22 P IXE Ο Fill - Conditional Format as Merge 2 Center - Cell - - % Insert Delcte Format Format Painter 88 Sort & nep BIU - Find A Formatting - Table Styles Clear Filler Select Clipboard For Aignment Söyles 091717 - X fx 2QM QN QOQPQQQRQSQIQUQV 1717 1718 1719 1720 1721 1722 1723 1724 1725 1726 1727 1728 1729 1730 BASE CASE BEST CASE WORST CASE 1731 SALES 53000 58300 10% + 47700 10% - 1732 PRICE 1050 1155 10% + 945 10%- 1733 VC 475 427.5 10%- 522.5 10% + 1734 FIXED COSTS 9900000 8910000 10% - 10890000 10% + 1735 SALES LOST (EXPENSIVE) 10000 9000 10%- 11000 10% + 1736 SALES GAINED (CHEAP) 12600 13860 10% + 11340 10%- 1737 1729 ... REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WAII STEIN indiffEPS EBIT LEASE SLM GOLF IRR MACRS BA... Circular References: 149 # 2 - ► + 140%

PRAVIN MANDORA - X Comments Share IXE Insert Delcte Format Copy - Σ Λαυδunι Fill - Clear Poste Ο Sort & Find Filler Select Cels Edeng QT QU QV Q4 SP AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do X Cut Calibri - 11 -AA === > 2 Wrap Text General 22 P top BIU - - - Format Painter - A. Merge Center - Conditional Format as - % 88 Cell Formatting - Table Styles Clipboard For Aignment Number Söyles 091758 - X fx QM QN QOQPQQ QR OS 1738 1739 CALCULATION OF CFAT BEST CASE 1740 SALES UNITS TOTAL 1741 NEW CLUBS 1155 58300 67336500 1742 EXPENSIVE CLUBS 1550 -9000 -13950000 1743 CHEAP CLUBS 475 13860 6583500 1744 59970000 1745 LESS VARIABLE COSTS UNITS TOTAL 1746 NEW CLUBS 58300 24923250 1747 EXPENSIVE CLUBS 680 -9000 -6120000 1748 CHEAP CLUBS 205 13860 2841300 1749 21644550 1750 1751 LESS FIXED COSTS 8910000 1752 LESS DEPRECIATION (32900000/7] 4700000.00 1753 EBT 24715450.00 1754 TAX 5437399.00 1755 NET INCOME 19278051.00 1756 ADD DEPRECIATION [32900000/7] 4700000.00 1757 CFAT 23978051.00 1758 1759 ... REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WAII Vc 427.5 STEIN indiffEPS EBIT LEASE AT 12% SLM GOLF IRR # DV OF MACRS 2 BA ... - ► + 140% Circular References: 549

PRAVIN MANDORA - X Comments Share Σ Λαυδunι Fill - Clear Poste Copy - Ο Sort & Find Filler Select Insert Delcte Format Cels Edeng OT QUQVQ AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Xcut Calibri -11 - AA === > 2 Wrap Text General stre - BIU- . . Format Painter - A Merge & Center - Conditional Format as - % 58 Cell Formatting - Table Styles Clipboard For Aignment Söyles 091778 - X f x UNITS OM ON I QO QP QQ QR os 1758 1759 1760 YEAR CFAT 1761 A 1762 -35580000 (=-32900000-2680000) 1763 23978051 1764 23978051 1765 23978051 1766 23978051 1767 23978051 1768 23978051 1769 26658051 (CFAT + RECOVERY OF WORKING CAPITAL] 1770 1771 1772 1773 NPV = 75062282.94 1774 1775 1776 1777 CALCULATION OF CFAT WORST CASE 1778 SALES SP UNITS TOTAL 1779 NEW CILIBS 045 4 770015076500 ... REPLACEMENI S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BONDOPTION TO WALL Circular References: 549 AT 12% PV OF PV FACTOR CFAT A*B 1.0000 -35580000.00 0.8929 21408974.11 0.7972 19115155.45 0.7118 17067103.08 0.6355 15238484.90 0.5674 13605790.09 0.5066 12148026.86 0.4523 12058748.45 NPV = 75062282.94 STEIN indiffEPSEBII LEASE SLM GOLF IRR MACRS # 2 BA ... - + 140%

projects (Autosaved) (Autosaved) (Autosaved) - Excel PRAVIN MANDORA - AutoSave @CH H2 File Home Insert X Cut X Comments Review View Help Tell me what you want to do Share Peste o copy- Page Layout Formulas Data Calibri - 11 -AA B I U . L- OA Fom fx === E > PE 2 Wrap Text Merge & Center - Σ Λαυδunι Fill- Clear General - % Number Ο Sort & Find Filter Select Format Painter Clipboard QT1796 - X SR Insert Delete Format Conditional Format as Cell Formatting - Table Styles Söyles Aignment Colt Edeng OM ON 20 QP QQ QR OS QT QU V Q" WORST CASE UNITS 945 1550 475 TOTAL 47700 45076500 - 11000 -17050000 11340 5386500 33413000 TOTAL 47700 24923250 -11000 -7480000 11340 2324700 19767950 Vc UNITS 522.5 680 1776 1777 CALCULATION OF CFAT 1778 SALES 1779 NEW CLUBS 1780 EXPENSIVE CLUBS 1781 CHEAP CLUBS 1782 1783 LESS VARIABLE COSTS 1784 NEW CLUBS 1785 EXPENSIVE CLUBS 1786 CHEAP CLUBS 1787 1788 1789 LESS FIXED COSTS 1790 LESS DEPRECIATION 1791 EBT 1792 TAX 1793 NET INCOME 1794 ADD DEPRECIATION 1795 CFAT 1796 1797 ... REPLACEMENTS HPR GMAM EAC MACRS 205 (32900000/7] 10890000 4700000.00 -1944950 -427889 -1517061 4700000.00 3182939.00 (32900000/7] NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WAII STEIN indiffEPS EBIT LEASE AT 12% SLM GOLF IRR # DV OF MACRS 2 BA ... - ► + 140% Circular References: 149

PRAVIN MANDORA - X Comments Share Σ Λαυδunι Fill- Clear Poste Copy - Ο Sort & Find Filter Select Insert Delct Format Cels Edeng QT QUQV - A AutoSave @CH H2 projects (Autosaved) (Autosaved) (Autosaved) - Excel File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do X Cut Calibri - 11 -AA === > 2 Wrap Text General Merge & Center - Conditional Format as Format Paintor E - % Cell BTU - 1.0.A Formatting - Table Styles Clipboard Form Aignment Söyles QT1816 - X Box - QM QN QO QP QQ QR Qs 1796 1797 1798 YEAR CFAT 1799 1800 0 -35580000 [=-32900000-2680000) 1801 1 3182939.00 1802 2 3182939.00 1803 3 3182939.00 1804 4 3182939.00 1805 5 3182939.00 1806 6 3182939.00 1807 7 5862939.00 (CFAT + RECOVERY OF WORKING CAPITAL) 1808 1809 1810 1811 NPV = -19841545.43 1812 1813 1814 1815 1816 1917 ... REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANI BETA LEVERED REPLACEMENT BOND OPTION TO WALL AT 12% PV OF PV FACTOR CFAT A*B 1.0000 -35580000.00 0.89292841909.82 0.7972 2537419.48 0.7118 2265553.11 0.63552022815.28 0.5674 1806085.07 0.5066 1612575.95 0.45232652095.86 NPV = -19841545.43 STEIN indiffEPSEBUT LEASE SLM GOLFIER MACRS BA... # 2 - ELD + 140% Circular References: 549