Ultimate recreational tennis racket

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Reference no: EM13954831

You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $400 and sales volume to be 1,000 units in year 1, 1,250 units in year 2, and 1,325 units in year 3. The project has a 3 year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment in equipment of $165,000 which is depreciated straight-line to zero over the 3 year project life. The actual market value of the equipment at the end of year 3 is $35,000. Initial (t=0) net working capital (NWC) investment is $80,000 and NWC will maintain a level equal to 20% of the next year’s sales each year thereafter. The tax rate is 35% and the required return on the project is 10%. What is the NPV of this project?

Reference no: EM13954831

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