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You are considering a new product launch. The project will cost $1,900,000, have a four- year life, and have no salvage value; depreciation is straight-line
You are considering a new product launch. The project will cost $1,900,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year, price per unit will be $23,000, variable cost per unit will be $14,500, and fixed costs will be $530,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 25 percent. a-1. The unit sales, variable cost, and fixed cost projections given above 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? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. 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 and round your answers to 2 decimal places, e.g., 32.16.) b. Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) C. Upper bound Lower bound a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV b. ANPVIAFC C. Accounting break-even units of 10
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