McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $500 per set and have a variable cost

You are considering a new product launch. The project will cost $630,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year, price per unit will be $24,000, variable cost per unit will be $12,000, and fixed costs will be $283,000 per year. The required return is 12 percent and the relevant tax rate is 34 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±9 percent. What is the worst case NPV?    A.  $3,417,907 B.  $2,573,269 C.  $888,618 D.  $3,102,134 E.  $3,458,020 Unit salesWorst = 160 (1 - 0.09) = 145.6 units Variable cost per unitWorst = $12,000 (1 + 0.09) = $13,080 Fixed costsWorst = $283,000 (1 + 0.09) = $308,470 OCFWorst = [($24,000 - $13,080)(145.6) - $308,470][1 - 0.34] + 0.34($630,000/5) = $888,618.12

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McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $500 per set and have a variable cost of $200 per set. The company spent $113,000 for a marketing study that determined the company will sell 58,000 sets per year for 7 years. The marketing study also determined that the company will lose sales of 15,000 sets of its high-priced clubs. The high-priced clubs sell at $700 and have variable costs of $300. The company will also increase sales of its cheap clubs by 9,000 sets. The cheap clubs sell for $200 and have variable costs of $100 per set. The fixed costs each year will be $7,559,000. The company has also spent $1,133,000 on research and development for the new clubs. The plant and equipment required will cost $21,000,000 and will be depreciated on a straight-line basis over the life of the project. The new clubs will also require an increase in net working capital of $1,053,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 8 percent. What is the IRR?    A.  7.51 percent B.  7.82 percent C.  8.13 percent D.  8.49 percent E.  8.62 percent Sales = ($500 × 58,000) + ($700 × (-15,000)) + $200 × 9,000) = $20,300,000 Variable costs = (-$200 × 58,000) + (-$300 × (-15,000)) + (-$100 × 9,000) = -$8,000,000 Depreciation = $21,000,000/7 = $3,000,000