A toy company is considering a project to produce scotters for young kids. The most likely outcomes for the project are as follows:

Expected sales: 42,000 units per year

Unit price: $65

Variable cost: $35 per unit

Fixed cost: $600,000 per year

The project will last for 10 years and requires an initial investment of $0.8 million, which will be depreciated straight-line over the project life to a final value of zero and there is no salvage value.

The firms tax rate is 21%, and the required rate of return is 10%.

However, you recognize that some of these estimates are subject to error.

Number of unit sold could fall 25% below expectations for the life of the project and, if that happens, the unit price would probably be only $55.

The good news is that fixed costs could be as low as $500,000, and variable costs would decline in proportion to sales.

What is project NPV if all variables are as expected?

What is NPV in the worst-case scenario?

Suppose every variable turns out to be as expected, except the variable cost.

What is the percentage change in variable cost that make this project break-even?