Explaining and Analysing the project in detail and finding NPV
You are considering a new product launch. The project will cost $870,000, have a 4-year life, and have no salvage value; depreciation is straight -line to zero. Sales and projected at 210 units per year; price per unit will be $20,000. Variable cost per unit will be $16,000, and fixed costs will be $348,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 36 percent.
Required:
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ± 11 percent. Determine the upper and lower bounds for these projections. The base-case NPV is $___________. The best-case NPV is $_________ and the worst-case NPV is $_________. (Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places, e.g. 32.16)
|
|
Upper Bound
|
Lower Bound
|
|
Unit sales
|
------
|
------
|
|
Variable cost per unit
|
$-----
|
$-----
|
|
Fixed costs
|
$-----
|
$-----
|