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A four year project has an initial investment in plant and equipment of $1.65 million, which will be depreciated on a straight line basis over

A four year project has an initial investment in plant and equipment of $1.65 million, which will be depreciated on a straight line basis over the four year life of the project. The company will sell 75,000 units at a price of $81 each and a variable cost of $39. Fixed costs are $2.2 million, the tax rate is 21% and the cost of capital is 15%. How sensitive is NPV to changes in price per unit? What does this number mean?

Equipment $ 1,650,000
Project life (years) 5
Sales (units) 75,000
Price/unit $ 81
Variable cost/unit $ 39
Fixed costs $ 2,200,000
Tax rate 21%
Required return 15%

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