Scenario Analysis A retail clothing firm is evaluating the development of a new range of all-weather coats. These coats contain an internal solar battery to provide heating whenever the garment is worn.

The solar batteries cost £3.2 million to make and the expectation is that the project will last for five years. At the end of the project, the machinery to make the batteries will be worthless because of new technological developments. Assume that depreciation is 20 per cent using the reducing balance method.

Sales are projected at 250,000 units per year. Price per battery is £10, variable cost per unit is £1.50, and fixed costs are £900,000 per year. The tax rate is 23 per cent, and we require a 13 per cent return on this project. Suppose the projections given for price, quantity, variable costs and fixed costs are all accurate to within ±10 per cent. Calculate the best-case and worst-case NPV figures.