McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,000...

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McGilla Golf is evaluating a new line of golf clubs. The clubswill sell for $1,000 per set and have a variable cost of $450 perset. The company has spent $157,500 for a marketing study thatdetermined the company will sell 50,500 sets per year for sevenyears. The marketing study also determined that the company willlose sales of 9,500 sets of its high-priced clubs. The high-pricedclubs sell at $1,500 and have variable costs of $630. The companyalso will increase sales of its cheap clubs by 12,100 sets. Thecheap clubs sell for $450 and have variable costs of $180 per set.The fixed costs each year will be $9,650,000. The company has alsospent $1,175,000 on research and development for the new clubs. Theplant and equipment required will cost $31,150,000 and will bedepreciated on a straight-line basis to a zero salvage value. Thenew clubs also will require an increase in net working capital of$2,530,000 that will be returned at the end of the project. The taxrate is 22 percent and the cost of capital is 15 percent.
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Suppose you feel that the values are accurate to within only Â±10percent. What are the best-case and worst-case NPVs?

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Best Case NPV 727807390 Worst Case NPV 4887865 Calculation of Sales For new golf clubs Selling Price 100000 Variable Cost 45000 No of sets sold per year 50500 Total Sales 5050000000 Total VC 2272500000 For high priced clubs Selling Price 150000 Variable Cost 63000 Loss in sets sold per year 9500 Decrease in Sales 1425000000 Decrease in VC 598500000 For See Answer

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