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 6 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 13 percent and the company has a 23 percent tax rate. Pessimistic Expected Optimistic Market size 113,000 123,000 135,000 Market share 19% 23% 25% Selling price $164 $169 $173 Variable costs per $106 $102 $ 99 unit Fixed costs per year $ 978,000 $ 923,000 $ 893,000 Initial investment $1,968,000 $1,818,000 $1,798,000 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.)
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 6 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 13 percent and the company has a 23 percent tax rate. Pessimistic Expected Optimistic Market size 113,000 123,000 135,000 Market share 19% 23% 25% Selling price $164 $169 $173 Variable costs per $106 $102 $ 99 unit Fixed costs per year $ 978,000 $ 923,000 $ 893,000 Initial investment $1,968,000 $1,818,000 $1,798,000 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.)
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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Vijay
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 6 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 13 percent and the company has a
23 percent tax rate.
Market size
Pessimistic
113,000
Expected
Optimistic
123,000
135,000
Market share
19%
23%
25%
Selling price
$164
$169
$173
Variable costs per
$106
$ 102
$99
unit
Fixed costs per year
$ 978,000
Initial investment
$1,968,000
$923,000
$1,818,000
$ 893,000
$1,798,000
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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