You are considering a new product launch. The project will cost $574,000, have a five-year life,...

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You are considering a new product launch. The project will cost $574,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160units per year, price per unit will be $16,000, variable cost per unit will be $12,500, and fixed costs will be $179,000 per year. The required return is 13.5 percent and the relevant tax rate is 35 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within+3 percent. What is the worst-case NPV? You are considering a new product launch. The project will cost $574,000, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160units per year, price per unit will be $16,000, variable cost per unit will be $12,500, and fixed costs will be $179,000 per year. The required return is 13.5 percent and the relevant tax rate is 35 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within+3 percent. What is the worst-case NPV?

Answer rating: 100% (QA)

To calculate the worstcase Net Present Value NPV for the new product launch we need to consider the worstcase scenario where sales variable costs and fixed costs are at their lowest estimated values w... View the full answer