5. You are considering a new product launch. The project will cost $1,980,000, have a four year life, and have no salvage value, depreciation is straight-line to zero. Sales are projected at 210 units per year, the price per unit will be $17,500, variable cost per unit will be $10,600, and fixed costs will be $570,000 per year. This required return on the project is 12 percent, and the relevant tax is 25 percent.

Based on your experience, you think the unit of sales, variable cost, and fix cost projection given here are probably accurate to within +/- 10 percent. You are, therefore, required to:

a. Show the OCF and NPV for the base case, the best case and worst case scenarios

b. Evaluate the sensitivity of your base-case, the base case NPV to changes in fixed costs.

c. Determine the cash break even level of output for this project (ignoring taxes) and the accounting break even level of output for this project

d. Show the degree of operating leverage at the accounting break even point? How do you interpret this number?