Question: Problem 5 - Sensitive Projects A firm with required rate of return 10% and tax rate 20% evaluates the following 3-year in- vestment plan:

Problem 5 - Sensitive Projects A firm with required rate of return 10% and tax rate 20% evaluates the following 3-year in- vestment plan: Initial investment is $30,000 depreciated linearly to zero, project is expected to sell 1,000 additional units for $30 each every year. The variable cost is $10/unit and the project has also a fixed cost of $5,000/year. 1. Estimate the NPV of the project. 2. Do a sensitivity analysis on price, estimating the NPV for $25 and $35. 3. Do a sensitivity analysis on initial investment, estimating the NPV if the initial investment is $18,000 or $42,000. 0

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