You are considering a new product launcn. Ine project will cost $2,350,000, nave a Tour- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 150 units per year; price per unit will be $31,000, variable cost per unit will be $19,000, and fixed costs will be $620,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 24 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.) b. 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.) 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.) Upper bound Lower bound a-1. Unit sales 165 135 Variable cost per unit $ 20,900 $ 17,100 Fixed costs $ 682,000 $ 558,000 a-2. Base-case NPV $ 673,872.51 Worst-case NPV $ -430,038.43 Best-case NPV $ 1,903,961.68 b. ANPV/AFC C. Accounting break-even units
You are considering a new product launcn. Ine project will cost $2,350,000, nave a Tour- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 150 units per year; price per unit will be $31,000, variable cost per unit will be $19,000, and fixed costs will be $620,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 24 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.) b. 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.) 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.) Upper bound Lower bound a-1. Unit sales 165 135 Variable cost per unit $ 20,900 $ 17,100 Fixed costs $ 682,000 $ 558,000 a-2. Base-case NPV $ 673,872.51 Worst-case NPV $ -430,038.43 Best-case NPV $ 1,903,961.68 b. ANPV/AFC C. Accounting break-even units
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
Related questions
Question
am. 112.
Transcribed Image Text:You are considering a new product launcn. Ine project will cost $2,350,000, nave a Tour-
year life, and have no salvage value; depreciation is straight-line to zero. Sales are
projected at 150 units per year; price per unit will be $31,000, variable cost per unit will
be $19,000, and fixed costs will be $620,000 per year. The required return on the
project is 14 percent, and the relevant tax rate is 24 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.)
b. 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.)
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.)
Upper bound
Lower bound
a-1. Unit sales
165
135
Variable cost per unit
$
20,900 $
17,100
Fixed costs
$
682,000 $
558,000
a-2. Base-case NPV
$
673,872.51
Worst-case NPV
$
-430,038.43
Best-case NPV
$
1,903,961.68
b.
ANPV/AFC
C.
Accounting break-even
units
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