You are considering a new product launch. The project will cost $2,050,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales areprojected at 210 units per year; price per unit will be $18.900, variable cost per unit willbe $12,200, and fixed costs will be $600.000 per year. The required return on theproject is 12 percent, and the relevant tax rate is 24 percent.a. Based on your experience, you think the unit sales, variable cost, and fixed costprojections given here are probably accurate to within 10 percent. What are theupper and lower bounds for these projections? What is the base-case NPV? What arethe best-case and worst-case scenarios? (A negative answer should be indicated bya minus sign. Do not round intermediate calculations. Round your NPV answers to2 decimal places, e.g., 32.16. Round your other answers to the nearest wholenumber, e.g. 32.)ScenarioC.BaseBestWorstUnit Salesb. ANPV/AFCc. Cash break-evenVariable Cost210 $Fixed Costs600,000b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. (Anegative answer should be indicated by a minus sign. Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)What is the cash break-even level of output for this project (ignoring taxes)? (Do notround intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)d-1. Accounting break-evend-2. Degree of operating leverage12,200 $NPVd-1. What is the accounting break-even level of output for this project? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)d-2. What is the degree of operating leverage at the accounting break-even point? (Donot round intermediate calculations and round your answer to 3 decimal places,e.g., 32.161.)

Net present value is difference between present value of cash inflows and the present value of cash…

You are considering a new product launch. The project will cost $2,050,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 210 units per year; price per unit will be $18,900, variable cost per unit will be $12.200, and fixed costs will be $600.000 per year. The required return on the project is 12 percent, and the relevant tax rate is 24 percent.

You are considering a new product launch. The project will cost $2,050,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 210 units per year; price per unit will be $18,900, variable cost per unit will be $12.200, and fixed costs will be $600.000 per year. The required return on the project is 12 percent, and the relevant tax rate is 24 percent.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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