Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please do on paper and give formulas You are considering a new product launch. The project will cost $2,150,000, have a 4-year life, and have

please do on paper and give formulas
image text in transcribed
image text in transcribed
You are considering a new product launch. The project will cost $2,150,000, have a 4-year life, and have no salvage value; depreciation is straight-line to 0 . Sales are projected at 150 units per year; price per unit will be $28,000; variable cost per unit will be $17,000; and fixed costs will be $580,000 per year. The required return on the project is 12%, and the relevant tax rate is 34%. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10%. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final NPV answers to 2 decimal places. Omit $ sign in your response.) b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 3 decimal places. Omit $ sign in your response.) NPV/FC c. What is the cash break-even level of output for this project (ignoring taxes)? (Round the final answers to the nearest whole unit.) Cash break-even units d-1. What is the accounting break-even level of output for this project? (Round the final answers to the nearest whole unit.) d-1. What is the accounting break-even level of output for this project? (Round the final answers to the nearest whole unit.) Accounting break-even units d-2. What is the degree of operating leverage at the accounting break-even point? (Round the final answer to 4 decimal places.) Degree of operating leverage

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Stand Up To The IRS How To Handle Audits Tax Bills And Tax Court

Authors: Frederick W. Daily Robin Leonard

2nd Edition

0873372409, 978-0873372404

More Books

Students also viewed these Accounting questions

Question

Describe how you might use your knowledge of intelligences at work.

Answered: 1 week ago