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
jeff jeffy answered 6 months agoRelated Solutions
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
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