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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
You are considering a new product launch. The project will cost $1,006,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 360 units per year; price per unit will be $19,800, variable cost per unit will be $16,300, and fixed costs will be $334,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 40 percent.
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within A?±10 percent.
| (c) | What is the base-case OCF and NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
| Â Â OCFbase | Â Â Â $ |
| Â Â NPVbase | $ |
| (d) | What is the OCF and NPV with fixed costs of $344,000 per year? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
| Â Â OCF | Â Â Â $ |
| Â Â NPV | $ |
| (e) | What is the sensitivity of the NPV to changes in fixed costs? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places (e.g., 32.16).) |
  For every dollar FC increase, NPV falls by $ .
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