Question
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
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 table below about the market for a racket with the new material. The company expects to sell the racket for four years. The equipment required for the project has no salvage value and will be depreciated on a straight-line basis. The required return for projects of this type is 12 percent, and the company has a 34 percent tax rate.
Pessimistic | Expected | Optimistic | |||||||||||
Market size | 118,000 | 133,000 | 158,000 | ||||||||||
Market share | 21 | % | 24 | % | 26 | % | |||||||
Selling price | $ | 147 | $ | 152 | $ | 158 | |||||||
Variable costs per unit | $ | 101 | $ | 96 | $ | 95 | |||||||
Fixed costs per year | $ | 962,000 | $ | 917,000 | $ | 887,000 | |||||||
Initial investment | $ | 1,260,000 | $ | 1,192,000 | $ | 1,124,000 | |||||||
Calculate the NPV for each case for this project. (A negative answer 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 | $ | |
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