Problem $11-20$ Project Analysis $[$LO$1,2]$

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$.,32\mathrm{.}161.)$

b$.$ Calculate the NPV$.($Do not round intermediate calculations and round your answer

to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

c$.$ Calculate the IRR. $($Do not round intermediate calculations and enter your answer as

a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$