Problem
You are a financial analyst for a tennis racquet manufacturing company. The company is considering producing a new racket with market estimates as shown in the table below. Based on 3 possible scenarios, the Company expects to produce this racket for approximately 5 years. The required investment is 13% and the company pays tax at a rate of 40%. Would you recommend investing in this project?
|
|
Pessimistic
|
Expected
|
Optimistic
|
|
Market size (unit)
|
106,000
|
120,000
|
135,000
|
|
Market share
|
14%
|
17%
|
19%
|
|
Selling price
|
$121
|
$125
|
$130
|
|
Variable cost per unit
|
$46
|
$43
|
$42
|
|
Fixed cost per year
|
$795,000
|
$725,000
|
$675,000
|
|
Initial investment
|
$2,000,000
|
$1,900,000
|
$1,800,000
|