Question: you are considering a new product launch. the project will cost 1,400,000.00, have a four-year life and have no salvage value; depreciation is straight line

you are considering a new product launch. the project will cost 1,400,000.00, have a four-year life and have no salvage value; depreciation is straight line to zero. sales are projected at 180 units per year; price per unit will be 16,000.00, variable cost per unit will be 9,800.00 and fixed costs will be 430,000.00 per year. the required return on the project is 12% and the relevant tax rate is 35%.

a. based on your experience, you think the unit sales,variable cost and fixed cost projections given here are probably accurate to within +-10%. What are the upper and lower bounds for these projections? what is the base-case NPV? what are the best and worst case scenarios?

b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.

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