Samsung Inc. is considering introducing a new iWatch product whose production would last 5 years. In the base case, the project requires an initial investment of $30 million. The annual fixed cost of production is $3 million and the variable cost is $250 per unit. The investment is depreciated on a straight-line basis over the 5-year period to its expected salvage value of zero. The cost of capital is 12%, and profits are taxed at a rate of 40%. Ignore working capital.

In addition, Samsung's marketing group has made the following base-case assessment of the iWatch market:

Note: Samsung Unit Sales = Market Size x Samsung Share of Market.

Calculate the NPV of the project in this base case. In addition, Samsung is unsure of the true Market Size, so calculate the break-even (NPV = 0) Market Size.

a. NPV = 3.1 million; break-even Market Size = 953,024

b. NPV = 4.6 million; break-even Market Size = 858,032

c. NPV = 1.1 million; break-even Market Size = 1,320,420

d. NPV = 5.4 million; break-even Market Size = 746,574

1.0 Million units Market Size (Annual Total Market Unit Sales) Samsung Share of Market Unit Price 10% $400 To reduce the number of steps in solving this problem, consider the following partially completed table: Year 0 1 2 3 4 5 Unit Sales 100,000 400 40,000,000 250 Unit Price Revenue Unit Cost Variable Cost Depreciation % Depreciation 25,000,000 20% 6,000,000 Revenue Variable Cost Fixed Cost Depreciation EBIT Tax 40,000,000 25,000,000 3,000,000 6,000,000 6,000,000 2,400,000 3,600,000 Unlevered Net Income (30,000,000) Investment Depreciation FCF (30,000,000) NPV 1.0 Million units Market Size (Annual Total Market Unit Sales) Samsung Share of Market Unit Price 10% $400 To reduce the number of steps in solving this problem, consider the following partially completed table: Year 0 1 2 3 4 5 Unit Sales 100,000 400 40,000,000 250 Unit Price Revenue Unit Cost Variable Cost Depreciation % Depreciation 25,000,000 20% 6,000,000 Revenue Variable Cost Fixed Cost Depreciation EBIT Tax 40,000,000 25,000,000 3,000,000 6,000,000 6,000,000 2,400,000 3,600,000 Unlevered Net Income (30,000,000) Investment Depreciation FCF (30,000,000) NPV