Farm Fresh, Inc is looking at another project with the base case estimate of variable values

below. If the tax rate is 40%, the project costs $400,000 depreciated straight line over the 4 year

project life (with no salvage value) and the WACC is 15%, determine whether the projects

NPV is sensitive to the variable costs by changing it by 10% in either direction. Show all computations and justify your answer.

Variable Base Case Estimate

Sales Units 5000

Sales Price $100

Variable Cost $ 50

Fixed Cost $50,000