Calculate the sensitivity of project npv

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Question - MG Golf has decided to sell a new line of golf clubs. The clubs will sell for $815 per set, with a variable cost of $365 per set. The company has spent $150,000 on 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 would lose sales of 10,000 sets of its high-priced clubs, which sell at $1,345 per set with a variable cost of $730 per set. The company will also increase sales of its cheap clubs by 12,000 sets, which sell for $445 per set with a variable cost of $210 per set.

The fixed costs each year will be $9.45 million. The company has spent $1 million on R&D for the new clubs. The plant and equipment required will cost $39.2mil and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.85 million that will be returned at the end of the project.

The company has a 25% tax rate and a 10% cost of capital.

1) Calculate the net present value (NPV) of this project.

2) Calculate the sensitivity of project NPV to changes in the price of the new clubs and the quantify of the new clubs sold.

Reference no: EM133171432

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