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 23 percent tax rate. Market size Market share Selling price Variable costs per unit Pessimistic 118,000 18% $ 166 $ 111 Expected 128,000 to- 22% $ 171 $107 Optimistic 140,000 24% $175 $ 104 $.000.000
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 23 percent tax rate. Market size Market share Selling price Variable costs per unit Pessimistic 118,000 18% $ 166 $ 111 Expected 128,000 to- 22% $ 171 $107 Optimistic 140,000 24% $175 $ 104 $.000.000
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
Related questions
Question

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
23 percent tax rate.
Market size
Market share
Selling price
Variable costs per
unit
Fixed costs per year
Initial investment
Pessimistic
118,000
Pessimistic
Expected
Optimistic
18%
$ 166
$111
$ 983,000
$ 1,690,000
Expected
128,000
22%
$171
$ 107
$ 928,000
$ 1,540,000
Optimistic
140,000
24%
$175
$ 104
$ 898,000
$1,520,000
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.)
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