In: Finance
Unit price: $50
Variable cost: $30
Fixed Cost: $430,000
Expected Sales: 42,000 units per year
However, you recognize that some of these estimates are subject to
error. Suppose that each variable may turn out to be either 10%
high or 10% lower than the initial estimate. The project will last
for 10 years and requires an initial investment of $1.9 million,
which will be depreciate straight line over the project life to a
final value of zero. The firm’s tax rate is 35% and the required
rate of return is 10%.