Andy Wong and Bojun Cui Enterprises (ABE) a very profitable company is considering a new product...

 

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Andy Wong and Bojun Cui Enterprises (ABE) a very profitable company is considering a new product launch. It will cost $12,000,000, have a 10 year life, depreciation is straight line and salvage value is zero. Sales are projected at 1000 units per year, price per unit will be $5,000, variable cost will be $2,000 per unit, and fixed costs are $1,000,000 per year. The required rate of return on the project is 12% and the tax rate is 40%. 1) ABE believes that unit sales can change by + 10%, price per unit by + 20%, variable cost per unit by + 15%, and fixed cost by + 5%. What is the base case NPV? What are the best case and worst case scenarios NPVS? 2) Using the relevant base case information determine the Cash break-even level of output? Accounting break-even level of output? Output level at which NPV is zero? Price at which NPV is zero? Andy Wong and Bojun Cui Enterprises (ABE) a very profitable company is considering a new product launch. It will cost $12,000,000, have a 10 year life, depreciation is straight line and salvage value is zero. Sales are projected at 1000 units per year, price per unit will be $5,000, variable cost will be $2,000 per unit, and fixed costs are $1,000,000 per year. The required rate of return on the project is 12% and the tax rate is 40%. 1) ABE believes that unit sales can change by + 10%, price per unit by + 20%, variable cost per unit by + 15%, and fixed cost by + 5%. What is the base case NPV? What are the best case and worst case scenarios NPVS? 2) Using the relevant base case information determine the Cash break-even level of output? Accounting break-even level of output? Output level at which NPV is zero? Price at which NPV is zero?