You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphite-like
Question:
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 5 years. The equipment required for the project has no salvage value. The required return for projects of this type is 13 per cent, and the company has a 40 per cent tax rate. Should you recommend the project?
Assume 20 per cent reducing balance depreciation.
Market size Market share (%) Selling price () Variable costs per unit () Fixed costs per year () Initial investment () Pessimistic 110,000 22 115 72 850,000 1,500,000 Expected 120,000 25 120 70 800,000 1,500,000 Optimistic 130,000 27 125 68 750,000 1,500,000
Step by Step Answer:
Tennis Racket with Graphite Material Investment Appraisal Based on the information in the image and the provided details we can perform a capital budg...View the full answer
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe
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