Problem $7-13$ Project Analysis

You are considering a new product launch. The project will cost $$820,000,$ have a $4-$year

IIfe, and have no salvage value; depreciation is straight$-$IIne to zero. Sales are projected

at $490$ units per year, price per unit will be $$18,400,$ varlable cost per unit will be $$15,100,$

and fixed costs will be $$830,000$ per year. The required return on the project is $14$

percent, and the relevant tax rate is $25$ percent.

a$.$ The unit sales, varlable 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

Intermedlate 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 indlcated by a minus sign. Do not round Intermedlate

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

Intermedlate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$