You are considering a new product launch The project will cost $1,400,000, 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 Variable cost per unit will be $9,800 and fixed costs will be $430,000 per year The required return on the project is 12 and relevant tax rate is 35 Based on your experience, you think the unit sales, variable cost and fixed cost projections given here are probably accurate to within a 10 spread What are the upper and lower bounds for these projections What is the base case NPV What are the best case and worst case scenarios

Question: You are considering a new product launch. The project will cost $1,400,000, 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 $1,400,000, 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.
Variable cost per unit will be $9,800 and
fixed costs will be $430,000 per year.
The required return on the project is 12% and relevant tax rate is 35%.

Based on your experience, you think the unit sales, variable cost and fixed cost projections given here are probably accurate to within a +/-10% spread.

What are the upper and lower bounds for these projections?
What is the base-case NPV? What are the best case and worst case scenarios?

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