Itabayo Corp. planning to do a project that requires an initial outlay of $1,200,000. This project...

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Itabayo Corp. planning to do a project that requires an initial outlay of $1,200,000. This project has a life span of 6 years with &$7,500 salvage value. The method for calculating depreciation used in this project is the straight-line method. The company has expectations of being able to sell as many as 4,500 units per year at prices $2,500 per unit sold. Itabayo Corp. also expect variable costs of $1,000 per units while fixed costs are $56,000 per year. The required rate of return for this project is 12.5% and tax 24%. Using the information above, calculate: 1. Upper and lower bound for unit sales, price, variable costs, and fixed costs if level projected accuracy of 10% 2. NPV in the base-case, best-case, and worst-case scenarios of this project. 3. Sensitivity of NPV in the base case if there is a change in variable costs (VC assumption changed to $1,550)! 4. Taking taxes into account, what is the financial break-even? Give your interpretation from the BEP value. 5. Ignoring taxes, what is the degree of operating leverage in the base-case scenario? Interpret your answer. Itabayo Corp. planning to do a project that requires an initial outlay of $1,200,000. This project has a life span of 6 years with &$7,500 salvage value. The method for calculating depreciation used in this project is the straight-line method. The company has expectations of being able to sell as many as 4,500 units per year at prices $2,500 per unit sold. Itabayo Corp. also expect variable costs of $1,000 per units while fixed costs are $56,000 per year. The required rate of return for this project is 12.5% and tax 24%. Using the information above, calculate: 1. Upper and lower bound for unit sales, price, variable costs, and fixed costs if level projected accuracy of 10% 2. NPV in the base-case, best-case, and worst-case scenarios of this project. 3. Sensitivity of NPV in the base case if there is a change in variable costs (VC assumption changed to $1,550)! 4. Taking taxes into account, what is the financial break-even? Give your interpretation from the BEP value. 5. Ignoring taxes, what is the degree of operating leverage in the base-case scenario? Interpret your answer.

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To calculate the upper and lower bounds for unit sales price variable costs and fixed costs we can use the projected accuracy of 10 to adjust the base ... View the full answer