Question
Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a child's shoe, which would then allow for the
Family Security is considering introducing tiny GPS trackers that 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
1010
percent (either above or below), associated with this new product are shown here:
LOADING...
.
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
1010
percent higher or
1010
percent lower than expected. Assume that this new product line will require an initial outlay of
$1.151.15
million, with no working capital investment, and will last for
1010
years, being depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is
10.310.3
percent, and the firm's marginal tax rate is
3434
percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high
estimateslong dashunit
price
1010
percent above expected, variable costs
1010
percent less than expected, fixed costs
1010
percent less than expected, and expected sales
1010
percent more than expected). Calculate the project's NPV under the "worst-case scenario."
Unit price: | $129129 |
---|---|
Variable costs: | $7272 |
Fixed costs: | $255 comma 000255,000 per year |
Expected sales: | 10 comma 10010,100 per year |
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