*i just need the answers. no need to go through the steps. thanks McGilla Golf h
ID: 2799041 • Letter: #
Question
*i just need the answers. no need to go through the steps. thanks
McGilla Golf has decided to sell a new line of golf clubs. The company would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $830 per set and have a variable cost of $430 per set. The company has spent $153,000 for a marketing study that determined the company will sell 57,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,800 sets of its high-priced clubs. The high-priced clubs sell at $1,130 and have variable costs of $730. The company will also increase sales of its cheap clubs by 11,300 sets. The cheap clubs sell for $470 and have variable costs of $245 per set. The fixed costs each year will be $9,130,000. The company has also spent $1,140,000 on research and development for the new clubs. The plant and equipment required will cost $28,910,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,330,000 that will be returned at the end of the project. The tax rate is 36 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to each of these variables?
NPV/P = ?
NPV/Q = ?Explanation / Answer
Change in NPV to Change in P =12.33%
Change in NPV to Change in Q =5.94%
A / 1 B C D E F G H I J K 2 McGilla Golf 3 Life of the project 7 years 4 Quantity per year 57000 5 Tax Rate 36% 6 Cost of Capital 10% 7 Plant and Equipment cost $28,910,000 8 Depreciation Straight-line 9 Increase in net working capital $1,330,000 will be recoverback at the end 10 Particulars New Clubs loss of high priced clubs Increase in cheap clubs 10% price sensitivity New Clubs Change% 10% Qty sensitivity New Clubs Change% 11 Quantity per year 57000 9800 11300 57000 62700 10.00% 12 Price per set $830 $1,130 $470 $913 10.00% $830 13 Sales $47,310,000 $11,074,000 $5,311,000 $52,041,000 $52,041,000 14 Variable cost per set $430 $730 $245 $430 $430 15 Variable cost $24,510,000 $7,154,000 $2,768,500 $24,510,000 $26,961,000 16 marketing expense $153,000 $0 $0 $153,000 $153,000 17 Research and development cost $1,140,000 $1,140,000 $1,140,000 18 Total variable cost $25,803,000 $7,154,000 $2,768,500 $25,803,000 $28,254,000 19 Contribution $21,507,000 $3,920,000 $2,542,500 $26,238,000 $23,787,000 20 Loss of high priced clubs ($3,920,000) ($3,920,000) ($3,920,000) 21 Increase in contribution from cheap clubs $2,542,500 $2,542,500 $2,542,500 22 Fixed Costs ($9,130,000) ($9,130,000) ($9,130,000) 23 Net Operating Income $10,999,500 $15,730,500 $13,279,500 24 Depreciation $4,130,000 $4,130,000 $4,130,000 25 Income before Taxes $6,869,500 $11,600,500 $9,149,500 26 Taxes $2,473,020 $4,176,180 $3,293,820 27 Net Profit $4,396,480 $7,424,320 $5,855,680 28 Net Cashflow from Operations $8,526,480 =C27+C24 $11,554,320 $9,985,680 29 30 Year Cashflow PV @10% Cashflow PV @10% Cashflow PV @10% 31 0 ($28,910,000) -$28,910,000 ($28,910,000) -$28,910,000 ($28,910,000) -$28,910,000 32 0 ($1,330,000) -$1,330,000 ($1,330,000) -$1,330,000 ($1,330,000) -$1,330,000 33 1 $8,526,480 $7,751,345 $11,554,320 $10,503,927 $9,985,680 $9,077,891 34 2 $8,526,480 $7,046,678 $11,554,320 $9,549,025 $9,985,680 $8,252,628 35 3 $8,526,480 $6,406,071 $11,554,320 $8,680,932 $9,985,680 $7,502,389 36 4 $8,526,480 $5,823,701 $11,554,320 $7,891,756 $9,985,680 $6,820,354 37 5 $8,526,480 $5,294,273 $11,554,320 $7,174,324 $9,985,680 $6,200,322 38 6 $8,526,480 $4,812,976 $11,554,320 $6,522,112 $9,985,680 $5,636,656 39 7 $8,526,480 $4,375,432 $11,554,320 $5,929,193 $9,985,680 $5,124,233 40 7 $1,330,000 $682,500 $1,330,000 $682,500 $1,330,000 $682,500 41 42 NPV $11,952,976 $26,693,769 123% $19,056,973 59.43% 43 12.33 5.94 44 Therefore 45Related Questions
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