You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennis racquets. The company has estimated the information in the following table about the market for a racquet with the new material. The company expects to sell the racquet for six years. The equipment required for the project has no salvage value. The equipment will be depreciated straight-line to zero over the project's life. The required return for projects of this type is 14 percent, and the company has a 40 percent tax rate. Assume the company has other profitable ongoing operations that are sufficient to cover any losses. Should you recommend the project? Market size Market share Selling price Variable costa per unit Fixed costs per year Initial investment Expected 151,000 25 146 $ 102.50 $ 98.50 $1,025,000 S 975,000 $2,250,000 $2,150,000 NPVPessinistics $ NPVExpected MPVOptimistic $ Pessimistic 131,000 $ $ 21 141 $ $ Optimistic 167,000 28 1 151 94.50 $920,000 2,050,000 Calculate the NPV under each scenario. (Round the final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit $ sign in your response.)

You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennis racquets. The company has estimated the information in the following table about the market for a racquet with the new material. The company expects to sell the racquet for six years. The equipment required for the project has no salvage value. The equipment will be depreciated straight-line to zero over the project's life. The required return for projects of this type is 14 percent, and the company has a 40 percent tax rate. Assume the company has other profitable ongoing operations that are sufficient to cover any losses. Should you recommend the project? Market size Market share Selling price Variable costa per unit Fixed costs per year Initial investment Expected 151,000 25 146 $ 102.50 $ 98.50 $1,025,000 S 975,000 $2,250,000 $2,150,000 NPVPessinistics $ NPVExpected MPVOptimistic $ Pessimistic 131,000 $ $ 21 141 $ $ Optimistic 167,000 28 1 151 94.50 $920,000 2,050,000 Calculate the NPV under each scenario. (Round the final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit $ sign in your response.)

Name: Nikul You are the financial analyst for a tennis racquet manufacturer.
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Description: Nikul You are the financial analyst for a tennis racquet manufacturer. The company is considering using a graphite-like material in its tennisracquets. The company has estimated the information in the following table about the market for a racquet wi

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
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