In: Finance
You are considering a new product launch. The project will cost $870,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 530 units per year; price per unit will be $18,900, variable cost per unit will be $15,600, and fixed costs will be $905,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 25 percent. |
a. |
The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. 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? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) |
b. |
Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
c. |
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.) |