questions 4,5,6

Task 1: Project Evaluation You are considering a new product launch. The project will cost $1,000,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 5,000 units per year; price per unit will be $7,000, variable cost per unit will be $6,400, and fixed costs will be $270,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 21 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within + 8 percent, Questions: 1. What are the upper and lower bounds for these projections? What are NPVs for the base case, the best-case and worst-case scenarios? (15 Points) 2. What is the accounting break-even level of output for this project? Solve for both with taxes and ignoring taxes. (8 Points) 3. What is the cash break-even level of output for this project? Solve for both with taxes and ignoring taxes. (8 points) 4. What is the financial break-even level of output for this project? Solve for both with taxes and ignoring taxes. (8 Points) 5. What is the degree of operating leverage under each scenario? (6 Points) 6. Draw the chart showing the sensitivity of the base-case NPV to changes in unit price. (10 Points) [ignoring Taxes) (with Taxes) Question 4 OCF at financial break even Financial break-even Question 5 Degree of operating leverage Question 6 Draw graph of "Sensitivity of NPV to changes in unit price" Unit Price NPV 5,500 5,750 6,000 6,250 6,500 6,750 7,000 7,250 7,500 7,750 8,000 Task 1: Project Evaluation You are considering a new product launch. The project will cost $1,000,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 5,000 units per year; price per unit will be $7,000, variable cost per unit will be $6,400, and fixed costs will be $270,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 21 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within + 8 percent, Questions: 1. What are the upper and lower bounds for these projections? What are NPVs for the base case, the best-case and worst-case scenarios? (15 Points) 2. What is the accounting break-even level of output for this project? Solve for both with taxes and ignoring taxes. (8 Points) 3. What is the cash break-even level of output for this project? Solve for both with taxes and ignoring taxes. (8 points) 4. What is the financial break-even level of output for this project? Solve for both with taxes and ignoring taxes. (8 Points) 5. What is the degree of operating leverage under each scenario? (6 Points) 6. Draw the chart showing the sensitivity of the base-case NPV to changes in unit price. (10 Points) [ignoring Taxes) (with Taxes) Question 4 OCF at financial break even Financial break-even Question 5 Degree of operating leverage Question 6 Draw graph of "Sensitivity of NPV to changes in unit price" Unit Price NPV 5,500 5,750 6,000 6,250 6,500 6,750 7,000 7,250 7,500 7,750 8,000