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Trying to figure out the right numbers with an explanation. You are considering a new product launch. The project will cost $2,350,000. have a 4-year
Trying to figure out the right numbers with an explanation.
You are considering a new product launch. The project will cost $2,350,000. have a 4-year life, and have no salvage value; depreciation is straight-line to 0. Sales are projected at 150 units per year: price per unit will be $31,000; variable cost per unit will be $19,000; and fixed costs will be $620,000 per year. The required return on the project is 14%, and the relevant tax rate is 34%. a. Based on your experience. you think the unit sales, variable cost. and xed cost projections given here are probably accurate to within i10%. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? {Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final NPV answers to 2 decimal places. Omit $ sign in your response.) Scenario Unit: Selee Variable Coat: Fixed Coat-.1: m 353.. 15a 0 5 15,000 0 s -o s 501,213.13 0 a.\" 165 o 5 11,100 0 5 - 3 1,569,467.52 0 worst 135 o s 211.900 0 5 - $ 457,427.31 0 b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. {Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 3 decimal places. Omit 3 sign in your response.) ANPVIAFC $ 4.920 a c. What is the cash brea k-even level of output for this project (ignoring taxes)? [Round the final answers to the nearest whole unit.) Cash breakeven 51.67 0 units d-1. What is the accounting break-even level of output for this project? [Round the final answers to the nearest whole unit.) Accounting breakeven 100.63 0 units d-2. What is the degree of operating leverage at the accounting break-even point? (Round the final answer to 4 decimal places.) Degree of operating leverage 2.0552 9Step by Step Solution
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