Problem $7-13$ Project Analysis

You are considering a new product launch. The project will cost $$880,000,$

have a $4-$year life, and have no salvage value; depreciation is straight$-$line to

zero. Sales are projected at $540$ units per year, price per unit will be $$19,000,$

variable cost per unit will be $$15,700,$ and fixed costs will be $$920,000$ per

year. The required return on the project is $10$ percent, and the relevant tax rate

is $21$ percent.

a$.$ The unit sales, variable cost, and fixed cost projections given above are

probably accurate to within $+-10$ percent. What are the upper and lower

bounds for these projections? What is the base$-$case NPV$?$ What are the

best$-$case and worst$-$case scenarios? $($A negative amount should be

indicated by a minus sign. Do not round intermediate calculations and

round your NPV answers to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ Calculate the sensitivity of your base$-$case NPV to changes in fixed costs. $($A

negative amount should be indicated by a minus sign. Do not round

intermediate calculations and round your answer to $3$ decimal places,

e$.$g$.,32\mathrm{.}161.)$

c$.$ What is the accounting break$-$even level of output for this project? $($Do not

round intermediate calculations and round your answer to $2$ decimal

places, e$.$g$.,32\mathrm{.}16.)$