You are considering a new product launch. The project will cost $1.675 million, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16300; variable cost per unit will be $9400; and fixed costs will be $550000 per year. The required return on the project is 12% and the relevant tax rate is 21%.

a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to with +-10%. 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?

b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.

c. What is the accounting break-even level of output for this project?