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 seven 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

$ 2,500,000

Income statement of every year fFind MSP