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 6 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 13 percent and the company has a 21 percent tax rate. Pessimistic Expected Optimistic Market size 116,000 126,000 138,000 Market share 19 % 23 % 25 % Selling price $ 166 $ 171 $ 175 Variable costs per unit $ 109 $ 105 $ 102 Fixed costs per year $ 981,000 $ 926,000 $ 896,000 Initial investment $ 1,986,000 $ 1,836,000 $ 1,816,000 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.)
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 6 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 13 percent and the company has a 21 percent tax rate. Pessimistic Expected Optimistic Market size 116,000 126,000 138,000 Market share 19 % 23 % 25 % Selling price $ 166 $ 171 $ 175 Variable costs per unit $ 109 $ 105 $ 102 Fixed costs per year $ 981,000 $ 926,000 $ 896,000 Initial investment $ 1,986,000 $ 1,836,000 $ 1,816,000 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
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 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 6 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 13 percent and the company has a 21 percent tax rate. |
| Pessimistic | Expected | Optimistic | |||||||||||
| Market size | 116,000 | 126,000 | 138,000 | ||||||||||
| Market share | 19 | % | 23 | % | 25 | % | |||||||
| Selling price | $ | 166 | $ | 171 | $ | 175 | |||||||
| Variable costs per unit | $ | 109 | $ | 105 | $ | 102 | |||||||
| Fixed costs per year | $ | 981,000 | $ | 926,000 | $ | 896,000 | |||||||
| Initial investment | $ | 1,986,000 | $ | 1,836,000 | $ | 1,816,000 | |||||||
| 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.) |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education