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A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34%

A project requires an initial investment of $10,000, straight-line depreciable to zero over four years. The discount rate is 10%. Your tax bracket is 34% and you receive a tax credit for negative earnings in the year in which the loss occurs. Additional information for variables with forecast error are shown below.

Base Case

Lower Bound

Upper Bound

Unit Sales

3,000

2,750

3,250

Price/unit

$14

$13

$16

Variable cost/unit

$9

$8

$10

Fixed costs

$9,000

$8,500

$10,000

Suppose you want to conduct a sensitivity analysis for the possible changes in unit sales. What is the IRR when the sales level equals 3,250 units? A. 32.6% B. 42.8% C. 57.9% D. 118.6% E. 121.5%

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