# Question

Refer to Problem 9.10. McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. What is the sensitivity of the NPV to each of these variables?

In Problem 10

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $620. The company will also increase sales of its cheap clubs by 15,000 sets. The cheap clubs sell for $400 and have variable costs of $210 per set. The fixed costs each year will be $9,300,000. 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 qualify for depreciation at a CCA rate of 20 percent. The new clubs will also require an increase in net working capital of $1,400,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 14 percent. Calculate the payback period, the NPV, and the IRR. Assets will remain in the CCA class after the end of the project.

In Problem 10

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost of $430 per set. The company has spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $620. The company will also increase sales of its cheap clubs by 15,000 sets. The cheap clubs sell for $400 and have variable costs of $210 per set. The fixed costs each year will be $9,300,000. 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 qualify for depreciation at a CCA rate of 20 percent. The new clubs will also require an increase in net working capital of $1,400,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 14 percent. Calculate the payback period, the NPV, and the IRR. Assets will remain in the CCA class after the end of the project.

## Answer to relevant Questions

Your company is examining a new project. It expects to sell 9,000 units per year at $35 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $35 × 9,000 = $315,000. ...You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennis racquets. The company has estimated the information in the following table about the ...Suppose the returns on Canadian common stocks are normally distributed. Based on the historical record, use the NORMDIST function in Microsoft Excel to determine the probability that in any given year you will lose money by ...You own a stock portfolio invested 10 percent in stock Q, 35 percent in stock R, 20 percent in stock S, and 35 percent in stock T. The betas for these four stocks are 0.75, 1.90, 1.38, and 1.16, respectively. What is the ...Suppose the risk-free rate is 4.8 percent and the market portfolio has an expected return of 11.4 percent. The market portfolio has a variance of 0.0429. Portfolio Z has a correlation coefficient with the market of 0.39 and ...Post your question

0