You are considering a new product launch. The project will cost $857,000, have a four-year life,...

50.1K

Verified Solution

Question

Finance

You are considering a new product launch. The project will cost$857,000, 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 $19,200, variable cost perunit will be $15,100, and fixed costs will be $345,000 per year.The required return on the project is 11 percent, and the relevanttax rate is 34 percent.
Requirement 1:
Based on your experience, you think the unit sales, variablecost, and fixed cost projections given here are probably accurateto within ±5 percent.
(a)
What are the best and worst case NPVs with these projections?(Do not round intermediatecalculations. Negative amounts should be indicatedby a minus sign. Round your answers to 2 decimalplaces (e.g., 32.16).)
  NPV_best $
  NPV_worst $
(b) What is the base-case NPV? (Do not round intermediatecalculations. Round your answer to 2 decimal places (e.g.,32.16).)
  NPV_base $
Requirement 2:
What is the sensitivity of the NPV to changes in fixed costs?(Do not round intermediate calculations. Input the amountas a positive value. Round your answer to 2 decimal places (e.g.,32.16).)
  For every dollar FC increase, NPV falls by $ .

Answer & Explanation Solved by verified expert

3.9 Ratings (744 Votes)

Base Best Worst Best case comments Units 180 189 171 Units increased by 5 SP 19200 19200 19200 Cost 15100 14345 15062 Cost decreased by 5 Contribution p u 4100 4855 4138 Total Contribution 738000 917595 707555 Fixed cost 345000 327750 362250 Cost decreased by 5 Net See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

You are considering a new product launch. The project will cost$857,000, 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 $19,200, variable cost perunit will be $15,100, and fixed costs will be $345,000 per year.The required return on the project is 11 percent, and the relevanttax rate is 34 percent.Requirement 1:Based on your experience, you think the unit sales, variablecost, and fixed cost projections given here are probably accurateto within ±5 percent.(a)What are the best and worst case NPVs with these projections?(Do not round intermediatecalculations. Negative amounts should be indicatedby a minus sign. Round your answers to 2 decimalplaces (e.g., 32.16).) NPVbest$ NPVworst$ (b)What is the base-case NPV? (Do not round intermediatecalculations. Round your answer to 2 decimal places (e.g.,32.16).) NPVbase$ Requirement 2:What is the sensitivity of the NPV to changes in fixed costs?(Do not round intermediate calculations. Input the amountas a positive value. Round your answer to 2 decimal places (e.g.,32.16).) For every dollar FC increase, NPV falls by $ .