Reference no: EM132758548

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $798 per set and have a variable cost of $449 per set. The company has spent $185,486 for a marketing study that determined the company will sell 5,521 sets per year for seven years. The marketing study also determined that the company will lose sales of 965 sets of its high-priced clubs. The high-priced clubs sell at $1,097 and have variable costs of $735. The company will also increase sales of its cheap clubs by 1,035 sets. The cheap clubs sell for $450 and have variable costs of $203 per set. The fixed costs each year will be $873,281. The company has also spent $113,815 on research and development for the new clubs. The plant and equipment required will cost $2,862,894 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $129,589 that will be returned at the end of the project. The tax rate is 35 percent, and the cost of capital is 10 percent.

Problem 1: What is the sensitivity of the NPV to changes in the quantity of the new clubs sold?