(Related to Checkpoint 13.3) (Scenario analysis) 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 11 percent (either above or below), associated with this new product are shown here: 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 11 percent higher or 11 percent lower than expected. Assume that this new product line will require an initial outlay of $1.09 million, with no working capital investment, and will last for 10 years, being depreciated down to zero using straight-line depreciation. In addition, the firm's required rate of return or cost of capital is 9.6 percent, and the firm's marginal tax rate is 34 percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high estimates-unit price 11 percent above expected, variable costs 11 percent less than expected, fixed costs 11 percent less than expected, and expected sales 11 percent more than expected). Calculate the project's NPV under the "worst-case scenario." Data table Unit price: Variable costs: $127 $74 $252,000 per year Expected sales: 10,800 per year Fixed costs: (Click on the icon in order to copy its contents into a spreadsheet.) Print Done - X (Related to Checkpoint 13.4) (Break-even analysis) The Marvel Mfg. Company is considering whether or not to construct a new robotic production facility. The cost of this new facility is $576,000 and it is expected to have a six-year life with annual depreciation expense of $96,000 and no salvage value. Annual sales from the new facility are expected to be 2,010 units with a price of $1,060 per unit. Variable production costs are $610 per unit, and fixed cash expenses are $79,000 per year. a. Find the accounting and the cash break-even units of production. b. Will the plant make a profit based on its current expected level of operations? c. Will the plant contribute cash flow to the firm at the expected level of operations? (Related to Checkpoint 13.4) (Break-even analysis) Accounting Break-Even Project Point (in units) Price per Unit Variable Cost per Unit Fixed Costs Depreciation A 6,210 $52 B 750 $1,000 $98,000 $502,000 $23,000 $100,000 C D 1,970 1,970 $24 $24 $14 $ 5 $4,600 $12,000 (Click on the icon in order to copy its contents into a spreadsheet.) a. Calculate the missing information for each of the above projects. b. Note that Projects C and D share the same accounting break-even. If sales are above the break-even point, which (Related to Checkpoint 13.4) (Using break-even analysis) Mayborn Enterprises, LLC runs a number of sporting goods businesses and is currently analyzing a new T-shirt printing business. Specifically, the company is evaluating the feasibility of this business based on its estimates of the unit sales, price per unit, variable cost per unit, and fixed costs. The company's initial estimates of annual sales and other critical variables are shown here: - a. Calculate the accounting and cash break-even annual sales volume in units. b. Bill Mayborn is the grandson of the founder of the company and is currently enrolled in his junior year at the local state university. After reviewing the accounting break-even calculation done in part a, Bill wondered if the depreciation expense should be included in the calculation. Bill had just completed his first finance class and was well aware that depreciation is not an actual out-of-pocket expense but rather an allocation of the cost of the printing equipment used in the business over its useful life. What do you think? What can you learn from the cash and accounting break-even points? Data table Unit sales Price per unit Variable cost per unit Fixed cash expense per year Depreciation expense Base Case 7,700 $16.85 $10.29 $10,200 $4,400 (Click on the icon in order to copy its contents into a spreadsheet.) Print Done eck answ