4. The initial cost of developing a project in year 0 is $100,000. You expect to sell 3,000 units per year over the next 5 years (years 1 to 5) at a profit of $10 per unit. Given an interest rate of 7%, what is the NPV of this project? How many units would you have to sell to break even in terms of NPV? If we assumed that you sold 3,000 units per year, what profit per unit would break even in terms of NPV?

5. You are evaluating the NPV of a project to expand sales into a new region. The cost of the expansion is paid in year 0. The benefits of the expansion start in year 1 and last for 10 years, after which they end. Profits are determined by multiplying netprofitperunit by the amount of sales. There is some uncertainty about the cost and other parameters. We have high, low and base (most likely) estimates for each of the parameters. High Base Low Cost ($) 500,000 400,000 300,000 Sales (units) 85,000 60,000 35,000 Net profit per unit ($) 1.15 1.00 0.85 a) The annual interest rate is 5%. What is the NPV at the base values of the parameters? b) Show how sensitive the results are to the assumptions about sales, netprofitsperunit, and cost (use the high and low values of the parameters where appropriate). c) Do a scenario analysis and determine the NPV for the best and worst cases. (Be careful here, what combination of results is best? What combination is worst?)