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 25 percent tax rate. Market size Market share Pessimistic 115.000 Expected Optimistic 125,000 137,000 18% 22% 24% Selling price $ 165 $170 $174 Variable costs per $108 $104 $101
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 25 percent tax rate. Market size Market share Pessimistic 115.000 Expected Optimistic 125,000 137,000 18% 22% 24% Selling price $ 165 $170 $174 Variable costs per $108 $104 $101
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
![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
25 percent tax rate.
Market size
Market share
Pessimistic
115,000
Expected
125,000
Optimistic
137,000
18%
22%
24%
Selling price
$165
$ 170
$ 174
Variable costs per
$ 108
$ 104
$ 101
unit
Fixed costs per year
Initial investment
$980,000
$1,675,000
$925,000
$1,525,000
$895,000
$1,505,000
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.)
Pessimistic
Expected
Optimistic](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F33352cc6-6b90-4dfb-b12a-3828284ca75b%2F7809d398-6fff-4813-bb0c-7e757a492267%2Fyet66k8_processed.jpeg&w=3840&q=75)
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
25 percent tax rate.
Market size
Market share
Pessimistic
115,000
Expected
125,000
Optimistic
137,000
18%
22%
24%
Selling price
$165
$ 170
$ 174
Variable costs per
$ 108
$ 104
$ 101
unit
Fixed costs per year
Initial investment
$980,000
$1,675,000
$925,000
$1,525,000
$895,000
$1,505,000
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.)
Pessimistic
Expected
Optimistic
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