You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. C. What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV Upper bound Lower bound b. ANPV/AFC C. Accounting break-even units
You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. C. What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV Upper bound Lower bound b. ANPV/AFC C. Accounting break-even units
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:You are considering a new product launch. The project will cost $1,500,000, have a four-
year life, and have no salvage value; depreciation is straight-line to zero. Sales are
projected at 160 units per year; price per unit will be $18,000, variable cost per unit will
be $10,500, and fixed costs will be $450,000 per year. The required return on the
project is 10 percent, and the relevant tax rate is 22 percent.
a-1. The unit sales, variable cost, and fixed cost projections given above are probably
accurate to within ±10 percent. What are the upper and lower bounds for these
projections? What is the base-case NPV? What are the best-case and worst-case
scenarios? (Do not round intermediate calculations and round your answers to
the nearest whole number, e.g., 32.)
a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answer to 3 decimal places, e.g., 32.161.)
b.
C.
What is the accounting break-even level of output for this project? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g.,
32.16.)
a-1. Unit sales
Variable cost per unit
Fixed costs
a-2. Base-case NPV
Worst-case NPV
Best-case NPV
Upper bound
Lower bound
b.
ANPV/AFC
C.
Accounting break-even
units
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