Related to Checkpoint 13.2 and Checkpoint 13.3) (Comprehensive risk analysis) Blinkeria is considering introducing a new line of hand scanners that can be used to copy material and then download it into a personal computer. These scanners are expected to sell for an average price of

$9595

each, and the company analysts performing the analysis expect that the firm can sell

109 comma 000109,000

units per year at this price for a period of five years, after which time they expect demand for the product to end as a result of new technology. In addition, variable costs are expected to be

$1818

per unit and fixed costs, not including depreciation, are forecast to be

$1 comma 060 comma 0001,060,000

per year. To manufacture this product, Blinkeria will need to buy a computerized production machine for

$10.110.1

million that has no residual or salvage value, and will have an expected life of five years. In addition, the firm expects it will have to invest an additional

$302 comma 000302,000

in working capital to support the new business. Other pertinent information concerning the business venture is provided here:

LOADING...

.

a.Calculate the project's NPV.

b.Determine the sensitivity of the project's NPV to a(n)

88

percent decrease in the number of units sold.

c.Determine the sensitivity of the project's NPV to a(n)

88

percent decrease in the price per unit.

d.Determine the sensitivity of the project's NPV to a(n)

88

percent increase in the variable cost per unit.

e.Determine the sensitivity of the project's NPV to a(n)

88

percent increase in the annual fixed operating costs.

f.Use scenario analysis to evaluate the project's NPV under worst- and best-case scenarios for the project's value drivers. The values for the expected or base-case along with the worst- and best-case scenarios are listed here:

$nothing .

(Round to the nearest dollar.)

Initial cost of the machine

$10 comma 100 comma 00010,100,000

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Expected life

55

years

Salvage value of the machine

$00

Working capital requirement

$302 comma 000302,000

Depreciation method

straight line

Depreciation expense

$2 comma 020 comma 0002,020,000

per year

Cash fixed

costslong dashexcluding

depreciation

$1 comma 060 comma 0001,060,000

per year

Variable costs per unit

$1818

Required rate of return or cost of capital

9.99.9%

Tax rate

3434%

Initial cost of the machine

$10 comma 100 comma 00010,100,000

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Expected life

55

years

Salvage value of the machine

$00

Working capital requirement

$302 comma 000302,000

Depreciation method

straight line

Depreciation expense

$2 comma 020 comma 0002,020,000

per year

Cash fixed

costslong dashexcluding

depreciation

$1 comma 060 comma 0001,060,000

per year

Variable costs per unit

$1818

Required rate of return or cost of capital

9.99.9%

Tax rate

3434%

Data Table

Expected or Base Case

Worst Case

Best Case

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Unit sales

109 comma 000109,000

74 comma 12074,120

143 comma 880143,880

Price per unit

$9595

$83.6083.60

$113.05113.05

Variable cost per unit

$( 18 )(18)

$( 19.44 )(19.44)

$( 16.20 )(16.20)

Cash fixed costs per year

$( 1 comma 060 comma 000 )(1,060,000)

$( 1 comma 250 comma 800 )(1,250,800)

$( 932 comma 800 )(932,800)

Depreciation expense

$( 2 comma 020 comma 000 )(2,020,000)

$( 2 comma 020 comma 000 )(2,020,000)

$( 2 comma 020 comma 000 )(2,020,000)