Homework Help is Here – Start Your Trial Now!
Business
Accounting
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $925 per set and have a variable cost of $425 per set. The company has spent $150,000 for a marketing study that determined the company will sell 50,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,375 and have variable costs of $790. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $445 and have variable costs of $230 per set. The fixed costs each year will be $9.5 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $40.95 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.85 million that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Best-case NPV Worst-case NPV

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $925 per set and have a variable cost of $425 per set. The company has spent $150,000 for a marketing study that determined the company will sell 50,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,375 and have variable costs of $790. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $445 and have variable costs of $230 per set. The fixed costs each year will be $9.5 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $40.95 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.85 million that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Best-case NPV Worst-case NPV

Essentials Of Business Analytics
Essentials Of Business Analytics
1st Edition
ISBN:9781285187273
Author:Camm, Jeff.
Publisher:Camm, Jeff.
Chapter11: Monte Carlo Simulation
Section: Chapter Questions
Problem 3P
See similar textbooks
icon
Related questions
Question

Sach

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $925 per set and have a variable cost of $425 per set. The company has spent $150,000 for a marketing study that determined the company will sell 50,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,375 and have variable costs of $790. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $445 and have variable costs of $230 per set. The fixed costs each year will be $9.5 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $40.95 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.85 million that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Best-case NPV Worst-case NPV
Transcribed Image Text:McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $925 per set and have a variable cost of $425 per set. The company has spent $150,000 for a marketing study that determined the company will sell 50,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,375 and have variable costs of $790. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $445 and have variable costs of $230 per set. The fixed costs each year will be $9.5 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $40.95 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.85 million that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Best-case NPV Worst-case NPV
Expert Solution
steps

Step by step

Solved in 2 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Business Analytics
Essentials Of Business Analytics
Statistics
ISBN:
9781285187273
Author:
Camm, Jeff.
Publisher:
Cengage Learning,
SEE MORE TEXTBOOKS