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

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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 theseprojections?
(b) What is the base-case NPV?
Requirement 2:
What is the sensitivity of the NPV to changes in fixedcosts?

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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 theseprojections?(b)What is the base-case NPV?Requirement 2:What is the sensitivity of the NPV to changes in fixedcosts?