- Question A Ari 5 Marks You Are Considering A New Product Launch The Project Will Cost 960 000 Have A Four Year Li 1 (50.18 KiB) Viewed 70 times
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Question A (ARI: 5 Marks] You are considering a new product launch. The project will cost $960,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 240 units per year, price per unit will be $25,000; variable cost per unit will be $19.500; and fixed costs will be $830.000 per year. The required return on the project is 15 percent, and the relevant tax rate is 35 percent. Required: 1. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here 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? (2 marks) 2. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. (1 mark) 3. What is the accounting break-even level of output for this project? (1 mark) 4. Justify and explain your answer in details (1 mark) Answer: