A company that makes golf clubs is selling a new line of clubs. The clubs will sell for $750 per set and have a variable cost of $330 per set. The company has spent $150,000 for a marketing study to determine they will sell 51,000 sets per year for 7 years. That marketing study also determined the company will lose sales of 11,000 sets of its higher priced clubs. The high priced clubs sell at $1200 and have a variable cost of $650. The company will also increase sales of its cheap clubs by 9,500 sets. The fixed costs each year will be $8,100,000.The company has also spent $1,000,000 on R&D of for the new clubs.
The plant and equipment required will cost $22,400,000 and will be depreciated on a straight line basis. The new clubs will also require and increase in net working capital of 1,250,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 10%.
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