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- The campany have the following estimates for the project. Price: 2,500 USD per unit Variable Cost: 1,500 USD per unit Fixed Cost: 400,000 USD

- The campany have the following estimates for the project.

Price:

2,500 USD per unit

Variable Cost:

1,500 USD per unit

Fixed Cost:

400,000 USD

Quantity:

95,000 units

  1. Suppose the campany believe the estimates are accurate only to within +/- 18 %. What value should the campany use for the 3 variables (Quantity, Price and Variable Cost) when it perform its best case senario analysis? What about the worst case senarios? Please fill in the table below.

Base case

Best Case

Worst Case

PRICE

VARIABLE COST

FIXED COST

QUANTITY

  1. Ignoring the effect of taxes, assume that initial investment is $ 200,000, required return is 10% and life time is 4 years. Calculate the Accounting break-even quantity and Financial break-even quantity for the base case. How can you interpret your result.

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