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 six 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 13 percent, and the company has a 23 percent tax rate. Market size Pessimistic 123,000 Expected 138,000 Optimistic 163,000 Market share 20% 22% 25% Selling price $ 142 $ 147 $ 153 Variable costs per $ 96 $ 91 $ 90 unit Fixed costs per $ 957,000 year Initial investment $1,860,000 $ 912,000 $ 882,000 $1,758,000 $1,656,000 Calculate the NPV for each scenario. (A negative answer 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
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 six 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 13 percent, and the company has a 23 percent tax rate. Market size Pessimistic 123,000 Expected 138,000 Optimistic 163,000 Market share 20% 22% 25% Selling price $ 142 $ 147 $ 153 Variable costs per $ 96 $ 91 $ 90 unit Fixed costs per $ 957,000 year Initial investment $1,860,000 $ 912,000 $ 882,000 $1,758,000 $1,656,000 Calculate the NPV for each scenario. (A negative answer 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
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...
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Transcribed Image Text: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 six 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 13 percent, and the company has a 23 percent
tax rate.
Market size
Pessimistic
123,000
Expected
138,000
Optimistic
163,000
Market share
20%
22%
25%
Selling price
$
142
$
147 $
153
Variable costs per
$
96
$
91 $
90
unit
Fixed costs per
$ 957,000
year
Initial investment
$1,860,000
$ 912,000 $ 882,000
$1,758,000
$1,656,000
Calculate the NPV for each scenario. (A negative answer 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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