Question
The project will cost $990,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 320 units
The project will cost $990,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 320 units per year; price per unit will be $19,400, variable cost per unit will be $15,900, and fixed costs will be $330,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 30 percent. Requirement 1: Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10 percent. (a) What are the best and worst case NPVs with these projections?
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