Question: You are considering a new product launch. The project will cost $925,000, have a six-year life, and have no salvage value; depreciation is straight-line to

You are considering a new product launch. The project will cost $925,000, have a six-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected to be $1,800,000; variable cost per unit will be 60% of sales; 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. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within 10 percent. What is the NPV of the worst case scenario? What is the sensitivity of NPV to one dollar changes in variable cost? If the Standard Deviation of Revenue is 1,000,000, what is the standard deviation of NPV?

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