2.
We are evaluating a project that costs $748,000, has an 15-year life, and has no salvage value. Assume
that depreciation is straight-line to zero over the life of the project. Sales are projected at 142,000 units
per year. Price per unit is $39, variable cost per unit is $21, and fixed costs are $760,716 per year. The
tax rate is 34 percent, and we require a 14 percent return on this project.
Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within
+/-12 percent. The best-case NPV is $ and worst-case NPV is $.
(Do not include the dollar signs ($).
Negative amount should be indicated by a minus sign. Round your answers to the nearest whole
dollar amount. (e.g., 32).)
4.
value:
4.76 points
A 12-year project has an initial fixed asset investment of $159,600, an initial NWC investment of $15,200,
and an annual OCF of -$24,320. The fixed asset is fully depreciated over the life of the project and has
no salvage value. If the required return is 19 percent, the project's equivalent annual cost, or EAC, is
$.
(Do not include the dollar sign ($). Negative amount should be indicated by a minus sign.
Round your answer to 2 decimal places. (e.g., 32.16))
10.
value:
4.76 points
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $800 per set and have a
variable cost of $500 per set. The company has spent $185,000 for a marketing study that determined
the company will sell 77,000 sets per year for seven years. The marketing study also determined that the
company will lose sales of 16,000 sets of its high-priced clubs. The high-priced clubs sell at $1,200 and
have variable costs of $1,000. The company will also increase sales of its cheap clubs by 17,000 sets.
The cheap clubs sell for $500 and have variable costs of $300 per set. The fixed costs each year will be
$9,240,000. The company has also spent $1,294,000 on research and development for the new clubs.
The plant and equipment required will cost $22,000,000 and will be depreciated on a straight-line basis.
The new clubs will also require an increase in net working capital of $1,242,000 that will be returned at
the end of the project. The tax rate is 38 percent, and the cost of capital is 10 percent.
McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the
quantity of new clubs sold. The sensitivity of the NPV to changes in the price is $ and the sensitivity of
the NPV to the quantity sold is $.
(Do not include the dollar signs ($). Round your answers to 2
decimal places. (e.g., 32.16))