You are considering a new product launch. The project will cost $780 000, have a four- year life and no salvage value; depreciation is straight-line to zero. Sales are projected at 170 units per year; price per unit will be 16 300, variable cost per unit will 11 100 and fixed costs will be 535 000 per year. The required return on the project is 11% and the relevant tax rate is 30%.

(a). Based on your experience, you think the unit sales, variable costs and fixed costs projections given here are probably accurate within +-10%. What are the upper and lower bounds of these projections. What is the base-case NPV? What are the best-cast and worst-case scenarios.

b) Calculate the changes in NPV and interpret your result.