McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell f
ID: 2718051 • Letter: M
Question
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 has spent $122,000 for a marketing study that determined the company will sell 56,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 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 11,000 sets. The cheap clubs sell for $200 and have variable costs of $100 per set. The fixed costs each year will be $6,118,000. The company has also spent $856,000 on research and development for the new clubs. The plant and equipment required will cost $16,100,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $796,000 that will be returned at the end of the project. The tax rate is 36 percent, and the cost of capital is 11 percent.
The payback period is years?? (Round your answer to 3 decimal places. (e.g., 32.161)), the NPV is $?? (Negative amount should be indicated by a minus sign. Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 32)), and the IRR is percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
Please answer Payback period, Npv, IRR
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 has spent $122,000 for a marketing study that determined the company will sell 56,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 12,000 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 11,000 sets. The cheap clubs sell for $200 and have variable costs of $100 per set. The fixed costs each year will be $6,118,000. The company has also spent $856,000 on research and development for the new clubs. The plant and equipment required will cost $16,100,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $796,000 that will be returned at the end of the project. The tax rate is 36 percent, and the cost of capital is 11 percent.
The payback period is years?? (Round your answer to 3 decimal places. (e.g., 32.161)), the NPV is $?? (Negative amount should be indicated by a minus sign. Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 32)), and the IRR is percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
Please answer Payback period, Npv, IRR
Explanation / Answer
Calculation of Total Intial Outflow Particulars Amount in $ Cost of Plant and Machinary 16100000 Increase of WC 796000 Expenses in Marking Study 122000 Research and Development Exp 856000 Total Initial Outflow 17874000 Calculation of Incremental Cash inflow each year New Line golf Clubs High priced club Cheap Clubs Sale price 500 700 200 VC Cost 200 300 100 Contribution 300 400 100 No of sets 56000 12000 11000 Total Contribution 16800000 4800000 1100000 Less Loose Contribution of High priced club 4800000 Add: Increase contribution of Cheap clubs 1100000 Net Contribution per year 13100000 Less Fixed Cost 6118000 Profit before depriciation 6982000 Less: Depriciation 2300000 Profit before tax 4682000 Less: Tax @36% 1685520 Profit After Tax 2996480 Add: Depriciation 2300000 Cash inflow per year 5296480 Cost of Capital 11% YEAR Cash Flow Cumulative Cash flow D.F @11% DCIF 1 5296480 5296480 0.901 4772128.48 2 5296480 10592960 0.812 4300741.76 3 5296480 15889440 0.731 3871726.88 4 5296480 21185920 0.659 3490380.32 5 5296480 26482400 0.593 3140812.64 6 5296480 31778880 0.535 2833616.8 7 5296480 37075360 0.482 2552903.36 Discounted Inflow 24962310.24 Add: Realiazation of Working Capital 383672 383672.00 Total Discounted Inflow 25345982.24 Total Outfolw 17874000.00 NPV 7471982.24 ASSUME IRR @23% ASSUME IRR @21% INFLOW @23% INFLOW @21% INFLOW 17808449 18789399.84 OUTFLOW 17874000 17874000 NPV -65551.04 915399.84 IRR 21+65551.04+915399.84/915399.84 22.07 Ans. (a) Pay Period Initial Investement/Periodic Cash flow 3.375 years (17874000/5296480) Ans. (b) NPV 7471982 Ans. (b) IRR 22.07