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.) (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 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
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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 $365 per set. The company has spent $150,000 for a
marketing study that determined the company will sell 55,000 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 $1,345 and have variable costs
of $730. 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 $210 per set. The fixed costs each
year will be $9.45 million. The company has also spent $1 million on research and
development for the new clubs. The plant and equipment required will cost $39.2 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.) (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 $815 per set and have a variable cost of $365 per set. The company has spent $150,000 for a marketing study that determined the company will sell 55,000 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 $1,345 and have variable costs of $730. 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 $210 per set. The fixed costs each year will be $9.45 million. The company has also spent $1 million on research and development for the new clubs. The plant and equipment required will cost $39.2 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.) (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
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