You are considering a new product launch. The project will cost $980,000, have a 5-year life,...
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You are considering a new product launch. The project will cost $980,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 370 units per year, price per unit will be $15,975, variable cost per unit will be $12,100, and fixed costs will be $635,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 25 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-case and worst-case NPVS with these projections? Note: 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? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: 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. You are considering a new product launch. The project will cost $980,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 370 units per year, price per unit will be $15,975, variable cost per unit will be $12,100, and fixed costs will be $635,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 25 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-case and worst-case NPVS with these projections? Note: 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? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: 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.
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Answer rating: 100% (QA)
Solution a BestCase NPV Revenue 370 15975 5738250 Variable Cost 370 12100 4447000 Fixed Cost 635000 Total Cost 5082000 Net Income Revenue Total Cost 5738250 5082000 656250 Depreciation 980000 05 19600... View the full answer
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
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