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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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