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You are considering a new product launch. The project will cost $2,350,000, 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 $2,350,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 330 units per year, price per unit will be $19,600, variable cost per unit will be $14,000, and fixed costs will be $720,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 21 percent. saved Scenario Unit Sales NPV Base 330 $ Variable Cost Fixed Costs $ 14,000 $ 720,000 12,600 648,000 15,400 792,000 Best 363 865,812 65 2,781,520.88 -818,508.04 Worst 297 C b. Evaluate 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 2 decimal places, e.g., 32.16.) What is the cash break-even level of output for this project (ignoring taxes)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d-1. 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., 3216.) d-2. What is the degree of operating leverage at the accounting break-even point? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. ANPVIAFC C. Cash break-even d-1. Accounting break-even d-2. Degree of operating leverage
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