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A project under consideration costs $300,000, has a five-year life and has no salvage value. Depreciation is straight-line to zero. The firm has made the
A project under consideration costs $300,000, has a five-year life and has no salvage value. Depreciation is straight-line to zero. The firm has made the following projections related to this project: Unit Sales Price Per Unit Variable Cost Per Unit Fixed Costs Base Case 5,000 $250 $180 $240,000 Lower Bound 4,500 $225 $162 $216,000 Upper Bound 5,500 $275 $198 $264,000 The required return is 12 percent and the tax rate is 21 percent. No additional investment in net working capital is required. Requirement 1: What are the worst-case and best-case scenarios for this project? (Input unit sales as number of units. Round all other answers to the nearest whole dollar (e.g., 32).) Worst Case Best Case Unit Sales Price Per Unit Variable Cost Per Unit Fixed Costs $ $ $ ellele Requirement 2: Your analysis of the project's NPV in the "base case" shows a NPV of $58,675. However, your boss has asked you to determine the sensitivity of the project's NPV to potential changes in fixed costs. Using the firm's estimate of the highest possible level of fixed costs, complete the table below and use your results to assess the sensitivity of the project's NPV to changes in fixed costs. (Round all answers except your sensitivity estimate to the nearest whole dollar (e.g., 32). Round the sensitivity estimate to 2 decimal places (e.g., 32.16). Negative amounts should be indicated by a minus sign.) Sales Variable Costs Fixed Costs Depreciation EBIT Taxes Net Income Operating Cash Flow Net Present Value (NPV) $ $ $ Sensitivity (ANPV/AFC)
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