McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $920 per set and have a variable cost of $451 per set. The company has spent $250,000 for a marketing study that determined the company will sell 85,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,850 sets per year of its high-priced clubs. The high-priced clubs sell at $1,350 and have variable costs of $670. The company will also increase sales of its cheap clubs by 11,300 sets per year. The cheap clubs sell for $360 and have variable costs of $156 per set. The fixed costs each year will be $14,850,000. The company has also spent $2,000,000 on research and development for the new clubs. The plant and equipment required will cost $49,200,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,875,000 that will be returned at the end of the project. The tax rate is 25 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. Answer is complete but not entirely correct. 3.12 years Payback period Net present value Internal rate of return S 27,610,566.32 26.27 %
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $920 per set and have a variable cost of $451 per set. The company has spent $250,000 for a marketing study that determined the company will sell 85,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,850 sets per year of its high-priced clubs. The high-priced clubs sell at $1,350 and have variable costs of $670. The company will also increase sales of its cheap clubs by 11,300 sets per year. The cheap clubs sell for $360 and have variable costs of $156 per set. The fixed costs each year will be $14,850,000. The company has also spent $2,000,000 on research and development for the new clubs. The plant and equipment required will cost $49,200,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,875,000 that will be returned at the end of the project. The tax rate is 25 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. Answer is complete but not entirely correct. 3.12 years Payback period Net present value Internal rate of return S 27,610,566.32 26.27 %
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
Related questions
Concept explainers
Question
100%
Please help! The formulas look mostly right, I dont know why the answer is wrong!
Transcribed Image Text:McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $920 per set and have a variable cost of $451 per set.
The company has spent $250,000 for a marketing study that determined the company will sell 85,000 sets per year for seven years.
The marketing study also determined that the company will lose sales of 8,850 sets per year of its high-priced clubs. The high-priced
clubs sell at $1,350 and have variable costs of $670. The company will also increase sales of its cheap clubs by 11,300 sets per year.
The cheap clubs sell for $360 and have variable costs of $156 per set. The fixed costs each year will be $14,850,000. The company
has also spent $2,000,000 on research and development for the new clubs. The plant and equipment required will cost $49,200,000
and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,875,000 that
will be returned at the end of the project. The tax rate is 25 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.
Answer is complete but not entirely correct.
3.12 years
Payback period
Net present value
Internal rate of return
S
27,610,566.32
26.27 %
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education