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 4 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 12 percent and the company has a 24 percent tax rate. Market size Pessimistic 131,000 Expected 141,000 Optimistic 153,000 Market share 20% 24% 26% Selling price $141 $146 $150 Variable costs per $94 $ 90 $87 unit Fixed costs per year $ 966,000 Initial investment $ 1,318,000 $ 911,000 $1,168,000 $881,000 $1,148,000 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
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 4 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 12 percent and the company has a 24 percent tax rate. Market size Pessimistic 131,000 Expected 141,000 Optimistic 153,000 Market share 20% 24% 26% Selling price $141 $146 $150 Variable costs per $94 $ 90 $87 unit Fixed costs per year $ 966,000 Initial investment $ 1,318,000 $ 911,000 $1,168,000 $881,000 $1,148,000 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
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 4 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 12 percent and the company has a
24 percent tax rate.
Market size
Pessimistic
131,000
Expected
141,000
Optimistic
153,000
Market share
20%
24%
26%
Selling price
$141
$146
$150
Variable costs per
$94
$ 90
$87
unit
Fixed costs per year
$ 966,000
Initial investment
$ 1,318,000
$ 911,000
$1,168,000
$881,000
$1,148,000
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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