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 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.

Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (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 $

	Pessimistic				Expected				Optimistic
	Market size		124,000				139,000				164,000
	Market share		21	%			24	%			26	%
	Selling price	$	141			$	146			$	152
	Variable costs per unit	$	95			$	90			$	89
	Fixed costs per year	$	956,000			$	911,000			$	881,000
	Initial investment	$	1,545,000			$	1,168,000			$	1,100,000

Answer 1