Scenario Analysis 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 following table about the market for a racket with the new material. The company expects to sell the racket for five years. The equipment required for the project has no salvage value. The required return for projects of this type is 13 per cent, and the company has a 40 per cent tax rate. Should you recommend the project? Assume 20 per cent reducing balance depreciation.

Pessimistic Expected Optimistic Market size 110,000 120,000 130,000 Market share (%) 22 25 27 Selling price (€) 115 120 125 Variable costs per unit (€) 72 70 68 Fixed costs per year (€) 850,000 800,000 750,000 Initial investment (€) 1,5000,000 1,500,000 1,500,000