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 21 percent tax rate. Market size Market share Pessimistic 121,000 Expected 131,000 Optimistic 143,000 18% 22% 24% Selling price $ 159 $164 $ 168 Variable costs per $102 $98 $95 unit Fixed costs per year $ 974,000 $ 919,000 $889,000 Initial investment $1,650,000 $1,500,000 $1,480,000 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
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 21 percent tax rate. Market size Market share Pessimistic 121,000 Expected 131,000 Optimistic 143,000 18% 22% 24% Selling price $ 159 $164 $ 168 Variable costs per $102 $98 $95 unit Fixed costs per year $ 974,000 $ 919,000 $889,000 Initial investment $1,650,000 $1,500,000 $1,480,000 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
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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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
21 percent tax rate.
Market size
Market share
Pessimistic
121,000
Expected
131,000
Optimistic
143,000
18%
22%
24%
Selling price
$ 159
$164
$168
Variable costs per
$ 102
$ 98.
$ 95
unit
Fixed costs per year
Initial investment
$ 974,000
$1,650,000
$ 919,000
$889,000
$ 1,500,000
$1,480,000
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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