Question
You are considering a new product launch. The plant and equipment will cost $1,200,000, have a five year life, and be depreciated on a straight
You are considering a new product launch. The plant and equipment will cost $1,200,000, have a five year life, and be depreciated on a straight line basis to zero salvage value. Sales are projected at 1,400 units per year, price per unit will be $9,500, variable cost per unit will be $6,700, and fixed costs will be $600,000 per year. The project will require an investment in inventory of $150,000 to be returned at the end of the project. The require return on the project is 12% and the tax rate is 35%. Based on your knowledge, you feel that the price and quantity are accurate to within +/- 10% and fixed costs and variable costs are accurate to within +/- 15%. Show a table with the base case, best case and worst case values for the project. Also, calculate the payback period, NPV and IRR for the worst-case scenario.
Equipment | $ 1,200,000 |
Project life (years) | 5 |
Units per year | 1,400 |
Price per unit | $ 9,500 |
Variable cost per unit | $ 6,700 |
Fixed costs | $ 600,000 |
NWC | $ 150,000 |
Required return | 12% |
Tax rate | 35% |
Uncertainty | |
Price | 10% |
Units per year | 10% |
Variable cost | 15% |
Fixed cost | 15% |
Please show all work and formulas for each cell.
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