Question
You are considering a new product launch. The project will cost $2,025,000, have a four-year life, and have no salvage value; depreciation is straight-line to
You are considering a new product launch. The project will cost $2,025,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 200 units per year; price per unit will be $18,900, variable cost per unit will be $12,050, and fixed costs will be $590,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 23 percent.
| 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.) |
| c. | 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., 32.16.) |
| 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.) |
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