ch11 q22b sensitivity analysis

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $828 per set and have a variable cost of $417 per set. The company has spent $139,875 for a marketing study that determined the company will sell 5,339 sets per year for seven years. The marketing study also determined that the company will lose sales of 936 sets of its high-priced clubs. The high-priced clubs sell at $1,162 and have variable costs of $714. The company will also increase sales of its cheap clubs by 1,089 sets. The cheap clubs sell for $450 and have variable costs of $243 per set. The fixed costs each year will be $925,728. The company has also spent $110,941 on research and development for the new clubs. The plant and equipment required will cost $2,874,868 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $126,454 that will be returned at the end of the project. The tax rate is 29 percent, and the cost of capital is 8 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold? [Hint: Think of this as, "How much will project NPV change if I increase sell one more set of the new clubs each year]. You do not need to work through the whole problem again. Focus only on the one thing that has changed. Ask yourself how much additional after-tax revenue would be created annually if I sell one more set of new clubs. Whatever this amount is, it will remain constant over each of the 7 years of the project. Now you can solve it as a simple NPV of an