H 11 KQuestion 5 (of 6 5 value: 10.00 points McGilla Golf has decided to sell a
ID: 2806933 • Letter: H
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H 11 KQuestion 5 (of 6 5 value: 10.00 points McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $900 per set and have a variable cost of $500 per set. The company has spent $159,000 for a marketing study that determined the company will sell 55 000 sets per year for seven years. The marketing study also determined that the company will lose sales of 11,000 sets of its high-priced clubs. The high-priced clubs sell at $1,190 and have vanable costs of $790. The company will also increase sales of its cheap clubs by 11,500 sets. The cheap clubs sell for $530 and have variable costs of $275 per set. The fixed costs each vear will be $9,190 000 The company has also spent $1 200,000 on research and development for the new clubs. The plant and equipment required will cost $29,330,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,390,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 12 percent Suppose you ee that the values are accurate to within only ±10 percent What are the best case and worst-case NPVs? (Hint. The price and variable costs for the two existing sets of clubs are known with certainty, only the sales gained or lost are uncertain) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, (e.g, 32 16) NPV Best-case Worst-case ReferenceseBook & Resources Worksheet Difficulty IntermediateExplanation / Answer
Statement showing best case NPV
Statement showing Worst case NPV
Particulars 0 1 2 3 4 5 6 7 NPV Purchase price of machine -26397000 WC requirement -1251000 Total initial investment -27648000 SPPU 990 990 990 990 990 990 990 VCPU 450 450 450 450 450 450 450 CPU 540 540 540 540 540 540 540 Total units 60500 60500 60500 60500 60500 60500 60500 Total contribution 32670000 32670000 32670000 32670000 32670000 32670000 32670000 Add: contribution grain from cheap clubs(12650*(530-275)) 3225750 3225750 3225750 3225750 3225750 3225750 3225750 Less: contribution loss from high price clubs(9900*(1190-790)) 3960000 3960000 3960000 3960000 3960000 3960000 3960000 Fixed cost 8271000 8271000 8271000 8271000 8271000 8271000 8271000 Depreciation 3771000 3771000 3771000 3771000 3771000 3771000 3771000 PBT 19893750 19893750 19893750 19893750 19893750 19893750 19893750 Tax @ 40% 7957500 7957500 7957500 7957500 7957500 7957500 7957500 PAT 11936250 11936250 11936250 11936250 11936250 11936250 11936250 Add: depreciation 3771000 3771000 3771000 3771000 3771000 3771000 3771000 Annual Cash flow 15707250 15707250 15707250 15707250 15707250 15707250 15707250 Release of WC 1251000 Total cash flow -27648000 15707250 15707250 15707250 15707250 15707250 15707250 16958250 PVIF @ 12% 1 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 PV -27648000 14024330.36 12521724 11180110 9982241.3 8912715.5 7957781.7 7671051.1 44601954Related Questions
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