You are the financial analyst for a manufacturer of tennis rackets that has identified a graphite-like material that it is considering using in its rackets. Given the following information about the results of launching a new racket, will you undertake the project? (Assumptions: Tax rate = 40%, Effective discount rate = 13%, Depreciation = $300,000 per year, and production will occur over the next five years only.)
|
Pessimistic
|
Expected
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Optimistic
|
|
Market size
|
110,000
|
120,000
|
130,000
|
|
Market share
|
22%
|
25%
|
27%
|
|
Price
|
$115
|
$120
|
$125
|
|
Variable costs
|
$72
|
$70
|
$68
|
|
Fixed costs
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$850,000
|
$800,000
|
$750,000
|
|
Investment
|
$1,500,000
|
$1,500,000
|
$1,500,000
|