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 21 percent tax rate.       Pessimistic   Expected   Optimistic     Market size   116,000       126,000       138,000       Market share   19 %     23 %     25 %     Selling price $ 166     $ 171     $ 175       Variable costs per unit $ 109     $ 105     $ 102       Fixed costs per year $ 981,000     $ 926,000     $ 896,000       Initial investment $ 1,986,000     $ 1,836,000     $ 1,816,000         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
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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 21 percent tax rate.

 

    Pessimistic   Expected   Optimistic  
  Market size   116,000       126,000       138,000    
  Market share   19 %     23 %     25 %  
  Selling price $ 166     $ 171     $ 175    
  Variable costs per unit $ 109     $ 105     $ 102    
  Fixed costs per year $ 981,000     $ 926,000     $ 896,000    
  Initial investment $ 1,986,000     $ 1,836,000     $ 1,816,000    
 

 

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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