Question

Family Security is considering introducing tiny GPS trackers that can be inserted in the sole of a​ child's shoe, which would then allow for the tracking of that child if he or she was ever lost or abducted. The​ estimates, that might be off by

1010

percent​ (either above or​ below), associated with this new product are shown ​ here:  

LOADING...

.

Since this is a new product​ line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are

1010

percent higher or

1010

percent lower than expected. Assume that this new product line will require an initial outlay of

​$1.151.15

​million, with no working capital​ investment, and will last for

1010

​years, being depreciated down to zero using​ straight-line depreciation. In​ addition, the​ firm's required rate of return or cost of capital is

10.310.3

​percent, and the​ firm's marginal tax rate is

3434

percent. Calculate the​ project's NPV under the​ "best-case scenario"​ (that is, use the high

estimateslong dash—unit

price

1010

percent above​ expected, variable costs

1010

percent less than​ expected, fixed costs

1010

percent less than​ expected, and expected sales

1010

percent more than​ expected). Calculate the​ project's NPV under the​ "worst-case scenario."

Unit​ price:	​$129129
Variable​ costs:	​$7272
Fixed​ costs:	​$255 comma 000255,000 per year
Expected​ sales:	10 comma 10010,100 per year

Answer 1