You are considering a new product launch. The project will cost $780,000, have a four-year life,...

You are considering a new product launch. The project will cost $780,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 170 units per year, price per unit will be $16,300, variable cost per unit are projected to be $11,000, and fixed costs are projected to be $535,000 per year. The required return on the project is 17 percent, and the relevant tax rate is 21 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. a. What are the best and worst case NPVs with these projections? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the sensitivity of the NPV to changes in fixed costs? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You are considering a new product launch. The project will cost $1,750,000, have a four-year life,...

You are considering a new product launch. The project will cost $1,750,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 220 units per year; price per unit will be $20,000, variable cost per unit will be $13,000, and fixed costs will be $500,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 34 percent. a. The unit sales, variable cost, and...

You are considering a new product launch. The project will cost $680,000, have a four-year life,...

You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation. a. Calculate...

You are considering a new product launch. The project will cost $2,300,000, have a four-year life,...

You are considering a new product launch. The project will cost $2,300,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $30,000, variable cost per unit will be $18,500, and fixed costs will be $610,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 36 percent. a. The unit sales, variable cost, and fixed...

You are considering a new product launch. The project will cost $1,500,000, have a four-year life,...

You are considering a new product launch. The project will cost $1,500,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 30 percent. a. Based on your experience, you think...

You are considering a new product launch. The project will cost $1,006,000, have a four-year life,...

You are considering a new product launch. The project will cost $1,006,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 360 units per year; price per unit will be $19,800, variable cost per unit will be $16,300, and fixed costs will be $334,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 40 percent. Based on your experience, you think the unit...

You are considering a new product launch. The project will cost $2,250,000, have a four-year life,...

You are considering a new product launch. The project will cost $2,250,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 290 units per year; price per unit will be $19,600, variable cost per unit will be $13,400, and fixed costs will be $680,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 22 percent. a. Based on your experience, you think the...

You are considering a new product launch. The project will cost $1,950,000, have a four-year life,...

You are considering a new product launch. The project will cost $1,950,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year; price per unit will be $24,000, variable cost per unit will be $15,000, and fixed costs will be $540,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 34 percent. a. Based on your experience, you think...

You are considering a new product launch. The project will cost $1,550,000, have a four-year life,...

You are considering a new product launch. The project will cost $1,550,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 150 units per year; price per unit will be $19,000, variable cost per unit will be $11,000, and fixed costs will be $460,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 34 percent. a. The unit sales, variable cost, and...

You are considering a new product launch. The project will cost $1,700,000, have a four-year life,...

You are considering a new product launch. The project will cost $1,700,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 140 units per year; price per unit will be $22,000, variable cost per unit will be $12,500, and fixed costs will be $490,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 32 percent. a. The unit sales, variable cost, and...

You are considering a new product launch. The project will cost $680,000, have a four-year life,...

Subjects