What is the sensitivity of npv to changes in quantity sold

Assignment Help Financial Management

Reference no: EM131881987

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $700 per set and have a variable cost of $400 per set. The company has spent $244,000 for a marketing study that determined the company will sell 71,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 16,000 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $800. The company will also increase sales of its cheap clubs by 16,000 sets. The cheap clubs sell for $400 and have variable costs of $200 per set. The fixed costs each year will be $9,758,000. The company has also spent $1,269,000 on research and development for the new clubs. The plant and equipment required will cost $23,800,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,180,000 that will be returned at the end of the project. The tax rate is 37 percent, and the cost of capital is 16 percent.

McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold.

(a) What is the sensitivity of the NPV to changes in the price of the new club? (Do not round your intermediate calculations.)

(b) What is the sensitivity of the NPV to changes in the quantity sold? (Do not round your intermediate calculations.)

Reference no: EM131881987

Questions Cloud

Calculate the amount of expenses katie may deduct : If the studio is not a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

Interest payment that is paid monthly to service the loan : A loan of 20,000 is repaid with monthly payments for 5 years using the sinking fund method. the interest payment that is paid monthly to service the loan.

What rate of return would urban earn on the contracts : What rate of return would Urban earn on the contracts? Should Urban accept the contract?

Shares of common stock outstanding-what is the company wacc : Filer Manufacturing has 10.6 million shares of common stock outstanding. What is the company's WACC?

What is the sensitivity of npv to changes in quantity sold : What is the sensitivity of the NPV to changes in the price of the new club? What is the sensitivity of the NPV to changes in the quantity sold?

Explain use of mid-quarter convention for MACRS depreciation : Explain the use of the mid-quarter convention for MACRS (pronounced “makers”) depreciation.

Capitals projects should company accepts for coming year : Which capitals projects should company accepts for the coming year? why? support your answer with the use of a WMCC schedule and IOS graph.

What is their yield to maturity : A firm’s bonds have a maturity of 12 years with a $1,000 face value, What is their yield to maturity (YTM)?

Charged with assessing the firm financial performance : Terri Spiro, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firm’s financial performance during 2012.

User Account

All Pages