Question I You are considering a new product launch. The project will cost $1,400,000, have a four-year life, and have no salvage value; deprecation is straight-line to zero. Sales are projected as follows: Unit sales 95 120 150 190 ear In the projection, price per unit will be $16,000, variable cost per unit will be $9,800, and fixed costs will be $430,000 per year for four-year. The required return on the project is 12 percent, and the relevant tax rate is 35 percent. a. What is the base-case NPV? b. (3 points) (3 points) (3 points) (1 point) Evaluate the sensitivity of your base-case NPV to increase in fixed costs by $10,000 Evaluate the sensitivity of your base-case NPV to decrease in price per unit from S16,000 to $14,000 What can you say about the sensitivity of NPV by comparing your answers in (b) and (c) above? c. d. Question 2 A project under consideration costs $750,000, has a five-year life, and has no salvage value Depreciation is straight-line to zero. The required return is 17 percent, and the tax rate is 34 percent. Sales are projected at 600 units per year. Price per unit is $2,500, variable cost per unit is $1,500, and fixed costs are $200,000 per year Suppose you think that the unit sales, price, variable cost, and fixed cost projections given here are accurate to within +5 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the NPVs under the best- and worst-case scenarios? (2.5 points x 4 10 points) Question3 Consider the following information about three stocks under three different economic scenarios: State of economy in a given year Boom Normal Bust Rate of return in each state of economy Stock A Stock B 36% 13% Stock C 55% 9% -45% 17% 0% a. Calculate annual arithmetic return and standard deviation for each stock (2.5 points x 3-7.5 points) b. Which stock do you recommend to a risk-averse investor for investment? Why? (2.5 points)