Assume that for Project 2, the company finally chose Option B. It expects to sell 8,500 wheelchairs for an average price of $750 per unit. The assembly in Option B has a residual value of $350 000 at the end of the project. The company will need to add $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:

Depreciation method: straight line

Variable cost per unit: $120

Cash fixed costs per year: $35,000 of annual cost for assembly operation + $20,000 other fixed cost

Corporate marginal tax: 30%

Upon the forecast of unexpected economic conditions that may be caused by the current breakout of corona virus, the company management requires your Team to prepare a risk analysis for the case where the unit price of this product decreases by 25%.

Required:

Perform an NPV break-even analysis to identify break-even sales of the project when the unit price decreases by 25%.

Answer rating: 100% (QA)

At 1583 Units the NPV of the project will be Zero which means the PV of Cash Inflows will be equal t... View the full answer