The CEO of the Champ company asks you as an analyst to give an opinion...
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Finance
The CEO of the Champ company asks you as an analyst to give an opinion on the investment in the production of tennis rackets. A table has been set up with the main assumptions in the existing plans, BOP, probable prediction (best or expected), optimistic prediction (optimistic) and pessimistic prediction (pessimistic). The plan provides for production and sales for five years. The initial investment is expected to be worthless after five years. A 13% return is required on the investment. Income tax is 25%.
Table with the main assumptions per year:
Amounts in
Pessimistic forecast
Probable forecas
Optimistic forecast
Market size (units)
110000
120000
130000
Market share
22%
25%
27%
Sales price per unit
115
120
125
Variable cost per unit
72
70
68
Fixed operating costs
850000
800000
750000
Initial investment
1500000
1500000
Do you think it is right to approve this investment according to plan/forecasts based on the calculation of their net present value among other things? Make arguments for and or against.
Answer & Explanation
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