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What are the best and worst case Variable cost? You are considering a new product launch. The project will cost $2,075,000, have a four- year
What are the best and worst case Variable cost?
You are considering a new product launch. The project will cost $2,075,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 220 units per year; price per unit will be $18,800, variable cost per unit will be $12,350, and fixed costs will be $610,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 25 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10 percent. 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? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) Answer is complete but not entirely correct. $ Scenario Base Best Worst Unit Sales 220 242 198 Variable Cost $ 12,350 2,689,830 2,689,830 F ixed Costs $ 610,000 549,000 671,000 NPV 209,757.35 1,377,292.98 -831,338.11Step by Step Solution
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