You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennis racquets. The company has estimated the information in the following table about the market for a racquet with the new material. The company expects to sell the racquet for six years. The equipment required for the project has no salvage value. The equipment will be depreciated straight-line to zero over the project's life. The required return for projects of this type is 12 percent, and the company has a 40 percent tax rate. Assume the company has other profitable ongoing operations that are sufficient to cover any losses. Should you recommend the project? Market size Market share Selling price Variable costs per unit Fixed costs per year. Initial investment Pessimistic 144,000 NPVPessimistic $ NPVExpected $ NPVOptimistic $ 21 % 25 154 $ 164 $ $ 109.00 S $ 159 105.00 1,300,000 101.00 1,180,000 $ 1,155,000 $ 2,900,000 $ 2,800,000 $ 2,700,000 -$1,597,451.34 Expected 164,000 222,158.48 ✓ Calculate the NPV under each scenario. (Round the final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit $ sign in your response.) 3,527,598.01 Optimistic 193,000 $ $ $ 28 %

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennis
racquets. The company has estimated the information in the following table about the market for a racquet with the new material. The
company expects to sell the racquet for six years. The equipment required for the project has no salvage value. The equipment will be
depreciated straight-line to zero over the project's life. The required return for projects of this type is 12 percent, and the company has
a 40 percent tax rate. Assume the company has other profitable ongoing operations that are sufficient to cover any losses. Should you
recommend the project?
Market size
Market share
Selling price
Variable costs per unit
Fixed costs per year.
Initial investment
Pessimistic
144,000
NPVPessimistic $
NPVExpected $
NPVOptimistic $
21 %
154 $
Expected
164,000
Optimistic
193,000
$
25 %
159
105.00 $
$
164
$
101.00
109.00 $
$ 1,155,000 $ 1,300,000 $ 1,180,000
2,900,000 $ 2,800,000 $ 2,700,000
$
-$1,597,451.34
222,158.48
3,527,598.01
28 %
Calculate the NPV under each scenario. (Round the final answers to 2 decimal places. Negative amounts should be Indicated by a
minus sign. Omit $ sign in your response.)
Transcribed Image Text:You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennis racquets. The company has estimated the information in the following table about the market for a racquet with the new material. The company expects to sell the racquet for six years. The equipment required for the project has no salvage value. The equipment will be depreciated straight-line to zero over the project's life. The required return for projects of this type is 12 percent, and the company has a 40 percent tax rate. Assume the company has other profitable ongoing operations that are sufficient to cover any losses. Should you recommend the project? Market size Market share Selling price Variable costs per unit Fixed costs per year. Initial investment Pessimistic 144,000 NPVPessimistic $ NPVExpected $ NPVOptimistic $ 21 % 154 $ Expected 164,000 Optimistic 193,000 $ 25 % 159 105.00 $ $ 164 $ 101.00 109.00 $ $ 1,155,000 $ 1,300,000 $ 1,180,000 2,900,000 $ 2,800,000 $ 2,700,000 $ -$1,597,451.34 222,158.48 3,527,598.01 28 % Calculate the NPV under each scenario. (Round the final answers to 2 decimal places. Negative amounts should be Indicated by a minus sign. Omit $ sign in your response.)
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