In: Finance
You are considering a new product launch. The project will cost $857,000, 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 $19,200, variable cost per unit will be $15,100, and fixed costs will be $345,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 34 percent.
Requirement 1: |
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±5 percent. |
(a) |
What are the best and worst case NPVs with these projections? |
(b) | What is the base-case NPV? |
Requirement 2: |
What is the sensitivity of the NPV to changes in fixed costs? |