Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering a new product launch. The project will cost $850,000, have a 4-year life, and have no salvage value; depreciation is straight-line to

You are considering a new product launch. The project will cost $850,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 240 units per year; price per unit will be $16,475, variable cost per unit will be $11,450, and fixed costs will be $570,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 22 percent. 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 best-case and worst-case values for each of the projections? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

What are the best-case and worst-case OCFs and NPVs with these projections? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

What are the base-case OCF and NPV? (Do not round intermediate calculations. Round your OCF answer to the nearest whole number, e.g., 32, and round your NPV answer to 2 decimal places, e.g., 32.16.)

What are the OCF and NPV with fixed costs of $580,000 per year? (Do not round intermediate calculations. Round your OCF answer to the nearest whole number, e.g., 32, and round your NPV answer to 2 decimal places, e.g., 32.16.)

What is the sensitivity of your base-case NPV to changes in fixed costs? (Enter your answer as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Risk Management And Insurance

Authors: James TrieschmannSandra GustavsonSandra Gustavson, Robert HoytSandra Gustavson, Robert Hoyt, David Sommer

12th Edition

0324183208, 9780324183207

More Books

Students also viewed these Finance questions