You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphite–like material in its tennis rackets. The company has estimated the information in the table below about the market for a racket with the new material. The company expects to sell the racket for four years. The equipment required for the project has no salvage value and will be depreciated on a straight-line basis. The required return for projects of this type is 12 percent, and the company has a 34 percent tax rate.       Pessimistic   Expected   Optimistic     Market size   121,000       136,000       161,000       Market share   21 %     24 %     26 %     Selling price $ 144     $ 149     $ 155       Variable costs per unit $ 98     $ 93     $ 92       Fixed costs per year $ 959,000     $ 914,000     $ 884,000       Initial investment $ 1,248,000     $ 1,180,000     $ 1,112,000         Calculate the NPV for each case for this project.

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
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You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphite–like material in its tennis rackets. The company has estimated the information in the table below about the market for a racket with the new material. The company expects to sell the racket for four years. The equipment required for the project has no salvage value and will be depreciated on a straight-line basis. The required return for projects of this type is 12 percent, and the company has a 34 percent tax rate.

 

    Pessimistic   Expected   Optimistic  
  Market size   121,000       136,000       161,000    
  Market share   21 %     24 %     26 %  
  Selling price $ 144     $ 149     $ 155    
  Variable costs per unit $ 98     $ 93     $ 92    
  Fixed costs per year $ 959,000     $ 914,000     $ 884,000    
  Initial investment $ 1,248,000     $ 1,180,000     $ 1,112,000    
 

 

Calculate the NPV for each case for this project.

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