Question

In: Finance

You are considering a new product launch. The project will cost $4,500,000, have a five-year life,...

You are considering a new product launch. The project will cost $4,500,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 750 units per year; price per unit will be $15,500, variable cost per unit will be $12,200, and fixed costs will be $850,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 25 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±12 percent.

Question 1
Base Case Best Case Worst Case
Unit sales                                                           750                                                           750                                                           750
Variable cost/unit                                                    12,200
Fixed costs                                                 850,000
Sales
Variable cost
Fixed cost
Depreciation
EBIT
Taxes
Net income
OCF
NPV
Question 2
Accounting break-even (ignoring taxes)
Question 3
Cash break-even (ignoring taxes)
Question 4
OCF at financial-break even
Financial break-even (ignoring taxes)
Question 5
Degree of operating leverage

Solutions

Expert Solution

jeff jeffy answered 6 months ago
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