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THE ULTIMATE RETRO GAMING SYSTEM Initial Inputs: A technology firm is considering developing The Ultimate Retro Gaming System which will include thousands of games, highlighted by many of the classics from the 1970s, 1980s, and 1990s. This project under consideration costs $500,000, has a five-year life, and has no salvage value. Depreciation is straight-line to zero. The required return is 14%, and the tax rate is 21%. In addition, we have compiled the following information: Base Case Lower Bound Upper Bound Unit sales 40,000 35,000 45,000 Price per unit $100 $90 $110 Variable costs per unit $75 $70 $80 Fixed Costs per year $150,000 $125,000 $175,000 New Details: You now have been asked to consider some other inputs. The cost, life of the project, salvage value, straight-line depreciation, required return, and tax rate will remain the same. Now, however, you have been asked to consider the following additional possibilities: 1. Management is concerned that the sales projections may be too optimistic. What happens if all of our models are too high in terms of unit sales? What if actual sales are 25% lower than our models? 2. How would an annual increase in unit sales of 15% or an annual reduction in unit sales of 15% impact our models? (Hint: This is not a one-time change. It is an increase or decrease of 15% each year.) 3. Consider an annual decrease in price per unit in the best case, worst case, and base case of 10% per unit to an increase in price per unit of 10%. (Hint: This is not a one-time change. It is an increase or decrease of 10% each year.) 4. Consider an annual decrease in the variable costs per unit in the best case, worst case, and base case of 10% per unit to an increase in variable costs per unit of 10%. (Hint: This is not a one-time change. It is an increase or decrease of 10% each year.) 5. Consider any other potential changes to the model you may want to run. (This step is optional, but I want to allow for your own creativity.) Pls Show Work!!

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