In: Finance
Problem 9-23 Project Analysis [LO 2]
You are considering a new product launch. The project will cost
$1,232,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 310
units per year; price per unit will be $19,300, variable cost per
unit will be $15,800, and fixed costs will be $329,000 per year.
The required return on the project is 13 percent, and the relevant
tax rate is 35 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.
What are the best-case and worst-case values for each of the
projections? (Do not round intermediate calculations and
round your answers to the nearest whole number, e.g., 32.)
Scenario | Unit Sales | Variable Costs | Fixed Costs |
Base | 310 | $15,800 | $329,000 |
Best | |||
Worst | |||
What are the best-case and worst-case OCFs and 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.)
OCF | NPV | |
Best-case | $ | $ |
Worst-case | $ | $ |
What are the base-case OCF and NPV? (Do not round
intermediate calculations. Round your OCF answer to the nearest
whole number, e.g., 32, and round your NPV answer to 2 decimal
places, e.g., 32.16.)
OCFbase | $ |
NPVbase | $ |
What are the OCF and NPV with fixed costs of $339,000 per year?
(Do not round intermediate calculations. Round your OCF
answer to the nearest whole number, e.g., 32, and round your NPV
answer to 2 decimal places, e.g., 32.16.)
OCF | $ |
NPV | $ |
What is the sensitivity of your base-case NPV to changes in fixed
costs? (Enter your answer as a positive value. Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
For every dollar FC increases, NPV falls by $ .