McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $815 per set and have a variable cost of $375 per set. The company has spent $240,000 for a marketing study that determined the company will sell 67,600 sets per year for seven years. The marketing study also determined that the company will lose sales of 11,800 sets of its high-priced clubs. The high-priced clubs sell at $1,185 and have variable costs of $645. The company will also increase sales of its cheap clubs by 13,800 sets. The cheap clubs sell for $405 and have variable costs of $195 per set. The fixed costs each year will be $10,250,000. The company has also spent $1,900,000 on research and development for the new clubs. The plant and equipment required will cost $38,200,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,600,000 that will be returned at the end of the project. The tax rate is 24 percent, and the cost of capital is 12 percent. a. Calculate the payback period. (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. Calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Calculate the IRR (Do not round intermediate calculations and enter your answer as
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $815 per set and have a variable cost of $375 per set. The company has spent $240,000 for a marketing study that determined the company will sell 67,600 sets per year for seven years. The marketing study also determined that the company will lose sales of 11,800 sets of its high-priced clubs. The high-priced clubs sell at $1,185 and have variable costs of $645. The company will also increase sales of its cheap clubs by 13,800 sets. The cheap clubs sell for $405 and have variable costs of $195 per set. The fixed costs each year will be $10,250,000. The company has also spent $1,900,000 on research and development for the new clubs. The plant and equipment required will cost $38,200,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $2,600,000 that will be returned at the end of the project. The tax rate is 24 percent, and the cost of capital is 12 percent. a. Calculate the payback period. (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. Calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Calculate the IRR (Do not round intermediate calculations and enter your answer as
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**McGilla Golf Case Analysis**
McGilla Golf has decided to launch a new line of golf clubs. The clubs are priced at $815 per set with a variable cost of $375 per set. A marketing study suggests the sale of 67,600 sets annually over seven years.
### Effects on Existing Products:
- **High-Priced Clubs**:
- Will see a decrease in sales of 11,800 sets
- Current selling price: $1,185 per set
- Variable cost: $645 per set
- **Cheap Clubs**:
- Will see an increase in sales of 13,800 sets
- Current selling price: $405 per set
- Variable cost: $195 per set
### Costs and Investments:
- **Fixed Costs**: $10,250,000 annually
- **Research and Development**: $1,900,000
- **Plant and Equipment**: $38,200,000, with straight-line depreciation
- **Net Working Capital Increase**: $2,600,000, recoverable at project end
### Financial Considerations:
- **Tax Rate**: 24%
- **Cost of Capital**: 12%
### Calculations Required:
a. **Payback Period**: Calculate and round to 3 decimal places.
b. **Net Present Value (NPV)**: Calculate and round to 2 decimal places.
c. **Internal Rate of Return (IRR)**: Calculate and round to a percentage with 2 decimal places.
**Instructions:** Enter calculations in the provided format.
\[
\begin{array}{|c|c|}
\hline
\text{a. Payback period} & \text{years} \\
\hline
\text{b. NPV} & \$ \\
\hline
\text{c. IRR} & \% \\
\hline
\end{array}
\]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F102c784c-1369-4842-a65a-fbd53466243a%2Fccaadc66-1b2c-433a-a3b0-f35634b308b6%2Fmvwdtuq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**McGilla Golf Case Analysis**
McGilla Golf has decided to launch a new line of golf clubs. The clubs are priced at $815 per set with a variable cost of $375 per set. A marketing study suggests the sale of 67,600 sets annually over seven years.
### Effects on Existing Products:
- **High-Priced Clubs**:
- Will see a decrease in sales of 11,800 sets
- Current selling price: $1,185 per set
- Variable cost: $645 per set
- **Cheap Clubs**:
- Will see an increase in sales of 13,800 sets
- Current selling price: $405 per set
- Variable cost: $195 per set
### Costs and Investments:
- **Fixed Costs**: $10,250,000 annually
- **Research and Development**: $1,900,000
- **Plant and Equipment**: $38,200,000, with straight-line depreciation
- **Net Working Capital Increase**: $2,600,000, recoverable at project end
### Financial Considerations:
- **Tax Rate**: 24%
- **Cost of Capital**: 12%
### Calculations Required:
a. **Payback Period**: Calculate and round to 3 decimal places.
b. **Net Present Value (NPV)**: Calculate and round to 2 decimal places.
c. **Internal Rate of Return (IRR)**: Calculate and round to a percentage with 2 decimal places.
**Instructions:** Enter calculations in the provided format.
\[
\begin{array}{|c|c|}
\hline
\text{a. Payback period} & \text{years} \\
\hline
\text{b. NPV} & \$ \\
\hline
\text{c. IRR} & \% \\
\hline
\end{array}
\]
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