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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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vnt.4

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 5 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 14 percent and the company has a
21 percent tax rate.
Market size
Market share
Pessimistic
121,000
Expected
131,000
Optimistic
143,000
18%
22%
24%
Selling price
$ 159
$164
$168
Variable costs per
$ 102
$ 98.
$ 95
unit
Fixed costs per year
Initial investment
$ 974,000
$1,650,000
$ 919,000
$889,000
$ 1,500,000
$1,480,000
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
Expert Solution
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