Question: You are considering a new product launch. The project will cost $630,000, have a four-year life, and have no salvage value; depreciation is straight-line to
You are considering a new product launch. The project will cost $630,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 140 units per year, price per unit will be $13,700, variable costs per unit are projected to be $8,800, and fixed costs are projected to be $420,000 per year. The required return on the project is 18 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 10 percent. a. What are the best and worst case NPVs with these projections? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places. b. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places. c. What is the sensitivity of the NPV to changes in fixed costs? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.
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