Suppose a Solar Energy Company is considering setting up a new solar panel manufacturing company to supply solar panels. The companys chief financial officer develops the following forecast with help from production and marketing people.

ESTIMATES

Expected Size of the Market 10 million units

Expected market growth per year 0.01 (1%)

Estimated Sale Price per unit $12,000

Estimated Variable Cost per unit $9,600

Life of the Project 10 years

Initial Investment $500 million

Initial investment to be depreciated to a salvage value

of zero over a 10-year period

Fixed Cost per year $100 million

Tax Rate 10%

Cost of Capital 20%

1. Should we go ahead with this project if the cost of capital is 20%?

2. What happens to NPV if reduce the sale price to $10,000 per unit?

3. What happens to NPV if variable cost rises to $10,000 per unit?

4. What happens to NPV if tax rate rises to 20%

5. How much discount can you offer without losing money on the project?

In the Estimates section of the assignment, both the expected size of the market and expected market growth refer to the Solar Energy Company's share of the solar panel market and the Solar Energy Company's growth

Please answer each question independently. You should reuse the initial assumptions to answer each question independently.