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 six years. The equipment required for the project has no salvage value and will be depreciated on a straight-line basis. The required return for projects of this type is 13 percent, and the company has a 40 percent tax rate.
| | Pessimistic | | Expected | | Optimistic | |
| Market size | | 108,000 | | | | 123,000 | | | | 148,000 | | |
| Market share | | 20 | % | | | 23 | % | | | 25 | % | |
| Selling price | $ | 153 | | | $ | 158 | | | $ | 164 | | |
| Variable costs per unit | $ | 107 | | | $ | 102 | | | $ | 101 | | |
| Fixed costs per year | $ | 968,000 | | | $ | 923,000 | | | $ | 893,000 | | |
| Initial investment | $ | 1,920,000 | | | $ | 1,818,000 | | | $ | 1,716,000 | | |
|
| Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. |
