Suppose Michael Mead and Jeff Tran decided to set up a manufacturing facility that will produce solar panels. Sara Simons, the companys chief financial officer, develops the following forecast with help from production and marketing people.

ESTIMATES

1. Expected Size of the Market 10 million

2. Expected per year 0.01 (1%)

3. Estimated Sale Price per unit $12,000.

4. Estimated Variable Cost per unit $9,600. Life of the Project 10 years

5. Initial Investment $500 million Initial investment to be depreciated to a salvage value of zero over a period 10 year.

6. Fixed Cost per year $100 million

7. Tax Rate 10%

8. Cost of Capital 20%

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

10. What happens to NPV if the energy company reduces the price of solar panels to $10,000 per household?

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

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

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