Family Security is considering introducing tiny GPS trackers than can be inserted in the sole of a child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted.The estimates, that might be off by 8% (either above or below), associated with this new product are:

Unit price:

$125

Variable costs:

$76

Fixed costs:

$246,000 per year

Expected sales:

10,400 per year

Since this is a new product line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are 8% higher or 8% lower than expected.Assume that this new product line will require an initial outlay of $1.02 million, with no working capital investment, and will last for 10 years, being depreciated down to zero using straight line depreciation.In addition, the firm's required rate of return or cost of capital is 10.1%, while the firm's marginal tax rate is 34%.

1.Calculate the project's NPV under the "best-case scenario" (that is, use the high estimates - unit price 8% above expected, variable costs 8% less than expected fixed costs 8% less than expected, and expected sales 8% more than expected).

2.Calculate the project's NPV under the "worst-case scenario".

3.Explain the importance of your analysis and results.Explain the importance of risk analysis in the capital budgeting/financial planning decision-making process.