You are considering a new product launch. The project will cost $800,000, have a four-year life,...

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You are considering a new product launch. The project will cost$800,000, have a four-year life, and have no salvage value;depreciation is straight-line to zero. Sales are projected at 200units per year; price per unit will be $18,300, variable cost perunit will be $15,300, and fixed costs will be $630,000 per year.The required return on the project is 12 percent, and the relevanttax rate is 34 percent.
a) Based on your experience, you think the unit sales, variablecost, and fixed cost projections given here are probably accurateto within ±12 percent. What are the best and worst cases for theseprojections? What is the base-case NPV? What are the best-case andworst-case scenarios?
b) Evaluate the sensitivity of your base-case NPV to changes infixed costs.

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You are considering a new product launch. The project will cost$800,000, have a four-year life, and have no salvage value;depreciation is straight-line to zero. Sales are projected at 200units per year; price per unit will be $18,300, variable cost perunit will be $15,300, and fixed costs will be $630,000 per year.The required return on the project is 12 percent, and the relevanttax rate is 34 percent.a) Based on your experience, you think the unit sales, variablecost, and fixed cost projections given here are probably accurateto within ±12 percent. What are the best and worst cases for theseprojections? What is the base-case NPV? What are the best-case andworst-case scenarios?b) Evaluate the sensitivity of your base-case NPV to changes infixed costs.