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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 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 24 percent tax rate. |
Pessimistic | Expected | Optimistic | |||||||||||
Market size | 124,000 | 134,000 | 146,000 | ||||||||||
Market share | 18 | % | 22 | % | 24 | % | |||||||
Selling price | $ | 152 | $ | 157 | $ | 161 | |||||||
Variable costs per unit | $ | 99 | $ | 95 | $ | 92 | |||||||
Fixed costs per year | $ | 971,000 | $ | 916,000 | $ | 886,000 | |||||||
Initial investment | $ | 1,635,000 | $ | 1,485,000 | $ | 1,465,000 | |||||||
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.) |
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