BONUS QUESTION 3 Blinkeria is considering introducing a new line of hand scanners that can be used to copy material and then download it into a personal computer. These scanners are expected to sell for an average price of $100 each, and the company analysts performing the analysis expect that the firm can sell 100 000 units per year at this price for a period of five years, after which time they expect demand for the product to end as a result of new technology. In addition, variable costs are expected to be $20 per unit, and fixed costs, not including depreciation, are forecast to be $1 000 000 per year. To manufacture this product, Blinkeria will need to buy a computerised production machine for $10 million, which has no residual or salvage value and will have an expected life of five years. In addition, the firm expects it will have to invest an additional $300000 in working capital to support the new business. Other pertinent information concerning the business venture is as follows: Initial cost of the machine $10000 000 Expected life 5 years Salvage value of the machine SO Working capital requirement $300 000 Depreciation method Straight line Depreciation expense $2000 000 per year Cash fixed costs-excluding depreciation $1 000 000 per year Variable costs per unit $20 Required rate of return or cost of capital 10% Tax rate 30% (a) Calculate the project's NPV. (b) Determine the sensitivity of the project's NPV to a 10% decrease in the number of units sold. (c) Determine the sensitivity of the project's NPV to a 10% decrease in the cost per unit. (d) Determine the sensitivity of the project's NPV to a 10% increase in the variable cost per unit. (e) Determine the sensitivity of the project's NPV to a 10% increase in the annual fixed operating costs. (f) Use scenario to evaluate the project's NPV under worst - and best-case scenarios for the project's value drivers. The values for the expected or base-case scenario along with the worst- and best-case scenarios are as follows