You are considering a new product launch. The project will cost $820,000, have a four-year life, and have no salvage value: depreciation is straight-line to zero. The feasibility study cost was $10,000. Sales are projected at $450 units per year, price per unit will be $18,000; variable cost per unit will be $15,400; and fixed costs will be $610,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 35 percent.

a. Using Excel, what is the base case NPV? Would you accept this project?

b. Based on your experience, you think the unit sales, variable costs and fixed cost projections given here are probably accurate to within +/- 10 percent. Develop using Excel scenario manager, the best and worst scenarios.

c. Use Excel data table to perform a sensitivity analysis to change in fixed asset.

d. Using Excel, what is the accounting break-even level of output for this project.

e. Using Excel, what will be the new base case NPV if equipment will be sold at the end of project for $500,000 and that there will be an initial investment in net working capital of $50,000 which will be recovered at the end of the project.

f. Explain whether each of the following need to be treated as an incremental cashflow or not:

• An increase in sales of a company's other products caused by the investment.
• Depreciation expense
• Dividend payment.
• A shop that already own that will be used for the project, but otherwise will be sold at $100,000, its market value.
• Salaries of operation team who will be employed only if the project is accepted.