McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $880 per set and have a variable cost of $419 per set. The company has spent $170,000 for a marketing study that determined the company will sell 77,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,450 sets per year of its high-priced clubs. The high-priced clubs sell at $1,310 and have variable costs of $630. The company will also increase sales of its cheap clubs by 10,500 sets per year. The cheap clubs sell for $328 and have variable costs of $132 per set. The fixed costs each year will be $14,050,000. The company has also spent $1,200,000 on research and development for the new clubs. The plant and equipment required will cost $40,400,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,475,000 that will be returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 12 percent. Calculate the payback period, the NPV, and the IRR Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent. Payback period 5.70 years Net present value $ 26,923,811.87 Internal rate of return 14.07 %
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $880 per set and have a variable cost of $419 per set. The company has spent $170,000 for a marketing study that determined the company will sell 77,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,450 sets per year of its high-priced clubs. The high-priced clubs sell at $1,310 and have variable costs of $630. The company will also increase sales of its cheap clubs by 10,500 sets per year. The cheap clubs sell for $328 and have variable costs of $132 per set. The fixed costs each year will be $14,050,000. The company has also spent $1,200,000 on research and development for the new clubs. The plant and equipment required will cost $40,400,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,475,000 that will be returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 12 percent. Calculate the payback period, the NPV, and the IRR Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent. Payback period 5.70 years Net present value $ 26,923,811.87 Internal rate of return 14.07 %
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 1PA: Artisan Metalworks has a bottleneck in their production that occurs within the engraving department....
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Transcribed Image Text:McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $880 per set and have a variable cost of $419 per set.
The company has spent $170,000 for a marketing study that determined the company will sell 77,000 sets per year for seven years.
The marketing study also determined that the company will lose sales of 8,450 sets per year of its high-priced clubs. The high-priced
clubs sell at $1,310 and have variable costs of $630. The company will also increase sales of its cheap clubs by 10,500 sets per year.
The cheap clubs sell for $328 and have variable costs of $132 per set. The fixed costs each year will be $14,050,000. The company
has also spent $1,200,000 on research and development for the new clubs. The plant and equipment required will cost $40,400,000
and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,475,000 that
will be returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 12 percent. Calculate the payback period,
the NPV, and the IRR
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a
percent.
Payback period
5.70 years
Net present value
$
26,923,811.87
Internal rate of return
14.07 %
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