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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 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 25 percent tax rate.
Pessimistic Expected Optimistic Market size 115,000 125,000 137,000 Market share 18% 22% 24% Selling price $165 $170 $174 Variable costs(per unit)$108 $104 $101 Fixed costs(per year)$980,000 $925,000 $895,000 Initial investment $1,675,000 $1,525,000 $1,505,000
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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