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7. (24 points) Innovations Inc. is considering a launch of a new model of its self-driving car. The project will cost $1,000,000 for capital spending,
7. (24 points) Innovations Inc. is considering a launch of a new model of its self-driving car. The project will cost $1,000,000 for capital spending, have a four-year life, and will have zero market value at the end of its life; depreciation is straight-line to zero. Sales are projected at 250 units per year; price per unit will be $16,000, variable cost per unit will be $10,000, and fixed costs will be $450,000 per year. The required return on the project is 10% and the tax rate is 20%. a. Innovation Inc. believes sales price, unit sales, variable cost, and fixed cost projections are accurate to within \pm 20 percent. What are the base-case, worst-case, and best-case scenarios NPV? b. What is the sensitivity of NPV to changes in unit sales? c. What are the accounting break-even quantity, cash break-even quantity, and financial break-even quantity (ignoring taxes)
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