Question
You are an analyst for a major hockey stick manufacturer. The company is considering a new design for their hockey sticks. The market information is
You are an analyst for a major hockey stick manufacturer. The company is considering a new design for their hockey sticks. The market information is set our in the table below. The company plans to sell the new hockey sticks for six years. The equipment for the project has no salvage value. The equipment will be depreciated to zero over the projects life. The required rate of return is 14%, and the company has a 40% tax rate. Should you recommend the project? Explain you answer.
| Scenario | Pessimistic | Expected | Optimistic |
| Market Size (units) | 130,000 | 150,000 | 165,000 |
| Market Share | 21% | 25% | 27% |
| Selling Price | $ 140 | $ 148 | $ 150 |
| Variable Costs per unit | $ 102 | $ 95 | $ 94 |
| Fixed Costs per year | $ 1,015,000 | $ 915,000 | $ 910,000 |
| Initial Investment/equipment | $ 2,200,000 | $ 2,100,000 | $ 2,050,000 |
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
