You are considering a new product launch. The project will cost $ 2 , 4 0 0
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Question:
You are considering a new product launch. The project will cost $ have a year life, and have no salvage value; depreciation is straightline to Sales are projected at units per year; price per unit will be $; variable cost per unit will be $; and fixed costs will be $ per year. The required return on the project is and the relevant tax rate is
a Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within pm What are the upper and lower bounds for these projections? What is the basecase NPV What are the bestcase and worstcase scenarios? Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final NPV answers to decimal places. Omit $ sign in your response.
Scenario Unit Sales Variable Cost Fixed Costs NPV
Base
$
$
$
Best
$
$
$
Worst
$
$
$
b Evaluate the sensitivity of your basecase NPV to changes in fixed costs. Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to decimal places. Omit $ sign in your response.
Delta NPVDelta FC $
c What is the cash breakeven level of output for this project ignoring taxesRound the final answers to the nearest whole unit.
Cash breakeven
units
d What is the accounting breakeven level of output for this project? Round the final answers to the nearest whole unit.
Accounting breakeven
units
d What is the degree of operating leverage at the accounting breakeven point? Round the final answer to decimal places.
Degree of operating leverage
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