Company has decided to make a new line
Company has decided to make a new line of golf clubs. The new line will sell for $675/set of clubs, on a variable cost of $340/set. Last year the company spent $280,000 for a market study that found it may sell 70,000 sets of clubs per year over the next seven-year period. The study also found the company will lose sales of 9,000 sets of its current high priced line of clubs. This line of clubs sells at $1,100/set, on a variable cost of $550/set. Moreover the study found sales of it current line of cheap clubs will increase by 12.000 sets/year. The cheap club line sells for $300/set on a variable cost of $100/set.Fixed cost are estimated to $10.8M/year. The company has recently spent $1.7M on research and development for the new line of clubs. The additional plant and equipment required is estimated to cost $19.8M, which will be depreciated to zero dollars on a straight-line basis over the seven-year period, The new line of clubs will require an estimated net working capital of $1.5M, which will be returned at the end of project. The company tax rate is 30% its cost of capital 14%Calculate the project NPV
