You are considering a new product launch. The project will cost $1,850,000, have a four-year life,...

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You are considering a new product launch. The project will cost$1,850,000, have a four-year life, and have no salvage value;depreciation is straight-line to zero. Sales are projected at 180units per year; price per unit will be $22,000, variable cost perunit will be $14,000, and fixed costs will be $520,000 per year.The required return on the project is 12 percent, and the relevanttax rate is 36 percent.

a. The unit sales, variable cost, and fixed costprojections given above are probably accurate to within ±10percent. What are the upper and lower bounds for these projections?What is the base-case NPV? What are the best-case and worst-casescenarios?
b. Calculate the sensitivity of your base-caseNPV to changes in fixed costs.
c. What is the accounting break-even level ofoutput for this project?

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You are considering a new product launch. The project will cost$1,850,000, have a four-year life, and have no salvage value;depreciation is straight-line to zero. Sales are projected at 180units per year; price per unit will be $22,000, variable cost perunit will be $14,000, and fixed costs will be $520,000 per year.The required return on the project is 12 percent, and the relevanttax rate is 36 percent.a. The unit sales, variable cost, and fixed costprojections given above are probably accurate to within ±10percent. What are the upper and lower bounds for these projections?What is the base-case NPV? What are the best-case and worst-casescenarios?b. Calculate the sensitivity of your base-caseNPV to changes in fixed costs.c. What is the accounting break-even level ofoutput for this project?