You are considering a new product launch. the project will cost $1,400,000, have a four-year life, and have no salvage; depreciation is straight-line to zero. sales are projected at 180 units per year; price per unit will be $16,000, variable cost per unit will be $9,800, and fixed costs will be $430,000 per year. The required return on the project is 12 percent, and the relevent tax rate is 35 percent.
A. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to with +- 10 percent. What are upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios?
B. Evaluate the sensitivty of your bas-case NPV to changes in fixed costs.
C. What is the cash break-even level of output for this project (ignoring taxes)?
D. What is the accounting break-even level of output for this project? what is the degree of operation leverage at the accounting break-even point? How do you interpret this number?