McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $750.00 per set and have a variable cost of $360.00 per set. The company has spent $150,000 for a marketing study that determined the company will sell
72,000 sets per year for 7 years. The marketing study also determined that the company will lose sales of 8,500 sets per year of its high-priced clubs. The high-priced clubs sell a $1,100 and have variable costs of $540.
The company will also increase sales of its cheap clubs by 11,000 sets per year. The cheap clubs sell for $360 and have variable costs of $125 per set. The fixed costs each year will be $13,9000,000. The company has also spent
$1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,700,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital
of $2,100,000 that will be returned at the end of the project. The tax rate is 40%, and the cost of capital is 14%.
Calculate the payback period, the NPV and the IRR.
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