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 22 percent tax rate. Market size Pessimistic 127,000 Expected 137,000 Optimistic 149,000 Market share 18% 22% 24% Selling price $146 $151 $ 155 Variable costs per $96 $92 $ 89 unit Fixed costs per year $ 968,000 $ 913,000 $ 883,000 Initial investment $ 1,620,000 $1,470,000 $1,450,000 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.) Answer is complete but not entirely correct. Pessimistic $ -812,538.17 x Expected $ 1,069,047.64 Optimistic $ 2,724,574.28
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 22 percent tax rate. Market size Pessimistic 127,000 Expected 137,000 Optimistic 149,000 Market share 18% 22% 24% Selling price $146 $151 $ 155 Variable costs per $96 $92 $ 89 unit Fixed costs per year $ 968,000 $ 913,000 $ 883,000 Initial investment $ 1,620,000 $1,470,000 $1,450,000 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.) Answer is complete but not entirely correct. Pessimistic $ -812,538.17 x Expected $ 1,069,047.64 Optimistic $ 2,724,574.28
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter26: Capital Budgeting (capbud)
Section: Chapter Questions
Problem 5R
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