Question

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $880 per set and have a variable cost of $480 per set. The company has spent $158,000 for a marketing study that determined the company will sell 62,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,300 sets of its high-priced clubs. The high-priced clubs sell at $1,180 and have variable costs of $780. The company will also increase sales of its cheap clubs by 11,800 sets. The cheap clubs sell for $520 and have variable costs of $270 per set. The fixed costs each year will be $9,180,000. The company has also spent $1,190,000 on research and development for the new clubs. The plant and equipment required will cost $29,260,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,380,000 that will be returned at the end of the project. The tax rate is 34 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 answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

   

	NPV
Best-case	$ _________________
Worst-case	$ _________________

Answer 1

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

TOO LENGTHY SUM BUT I HAVE TRIED TO KEEP IT TOO SIMPLE. THANK YOU

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Home nert Page Layout Formulas Data Review View dd-Ins E AutoSum Wrap Text General aCopy в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. Styles ▼ ㆆ ▼ Clipboard QT269 QL Font Number QM QU Qw WORST CASE 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 CALCULATION OF CFAT SALES NEW CLUBS EXPENSIVE CLUBS CHEAP CLUBS UNITS TOTAL 792 1180 520 55800 44193600 13369400 5522400 36346600 11330 10620 LESS TOTAL VARIABLE COSTS NEW CLUBS EXPENSIVE CLUBS CHEAP CLUBS VC UNITS 528 780 270 5800 29462400 11330-8837400 2867400 23492400 10620 LESS LESS FIXED COSTS DEPRECIATION EBT TAX NET INCOME DEPRECIATION CFAT 10098000 4180000.00 -1423800 484092 939708 4180000.00 3240292.00 (29260000/7) ADD (29260000/7) (4 トト MIRR NPV IRR REPLACEMENT S . . . HPR GMAM EAC MACRS LEASE- , RATIOCASHBUDGET / wacc . BOND EPS EBIT , REPLACEMENT (STats | NPV . BETA LEVERED 9う rences: DX15 130% 09:12 19-01-2019