Suppose you are considering an investment project that requires $800,000, has a six‐year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per unit is $63, variable cost per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five‐year MACRS. The tax rate is 35% and you expect a 20% return on this investment.
(a) Determine the break‐even sales volume.
(b) Calculate the cash flows of the base case over six years and its NPW.
(c) If the sales price per unit increases to $400, what is the required break‐even volume?
(d) Suppose the projections given for price, sales volume, variable costs, and fixed costs are all accurate to within ±15%. What would be the NPW figures of the best‐case and worst‐case scenarios?