with explanation PLEASE!! You are the financial analyst for a tennis racket manu

Question

with explanation PLEASE!!

You are the financial analyst for a tennis racket manufacturer The company is considering using a graphite like 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 six years. The equipment required for the project has no salvage value. The required return for projects of this type is 13 percent, and the company has a 40 percent tax rate Pessimistic Expected Optimistic Market size 111,000 126,000 151,000 Market share 20% 23% 25% Selling price $ 156 $ 161 $167 Variable costs per unit $ 110 $ 105 $ 104 Fixed costs per year $ 971,000 $ 926,000 $ 396,000 Initial investment $1,933,000 $1,836,000 $1,734,000 Calculate the NPV for each case for this project. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places (e.g.. 32.16).) Pessimistic $ Expected $ Optimistic $

Explanation / Answer

To calculate the unit sales for each senario, we multiply the market sales times the company's market share. We can then use the quantity sold to find the revenue each year. We then construct the pro forma income statement for each scenario.

Note: Under pessimistic scenario the taxable income is negative. We assumed a tax credit in the case.

Now we calculate the NPV under each scenario

NPV Pessimistic= -1938000+159320PVIFA(13%,6)= $- 1301110.37

NPV Expected= - 1836000+540528PVIFA(13%,6)= $ 324787.60

NPV Optimistic= -1734000+1004950PVIFA(13%,6)= $2283337.66

Pessimistic Expected optimistic units per year 22200 28980 37750 Revenue 3463200 4665780 6304250 Variable Cost 2442000 3042900 3926000 Fixed Cost 971000 926000 896000 Depreciation 323000 306000 289000 EBT -272800 390880 1193250 tax -109120 156352 477300 net income -163680 234528 715950 OCF 159320 540528 1004950

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.