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.)
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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