Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Vinay
Transcribed Image Text:You are the financial analyst for a tennis racket manufacturer. The company is
considering using a graphitelike material in its tennis rackets. The company has
estimated the information in the following table about the market for a racket with the
new material. The company expects to sell the racket for 5 years. The equipment
required for the project will be depreciated on a straight-line basis and has no salvage
value. The required return for projects of this type is 14 percent and the company has a
24 percent tax rate.
Market size
Market share
Selling price
Variable costs per
unit
Fixed costs per
year
Initial investment
Pessimistic Expected
124,000
Pessimistic
Expected
Optimistic
$
$
$
$
$
18%
152
99 $
134,000
22%
157
95
$971,000
$916,000
$1,635,000 $1,485,000
-482,252.94 x
1,269,299.88 X
2,753,603.41
Optimistic
Answer is complete but not entirely correct.
Calculate the NPV for each case for this project. Assume a negative taxable income
generates a tax credit. (A negative amount should be indicated by a minus sign. Do
not round intermediate calculations and round your answers to 2 decimal places, e.g.,
32.16.)
146,000
24%
161
92
$886,000
$1,465,000
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