Maurice Tutor
$15/per page/Negotiable
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. |
| Required: |
| (a) |
What are the best and worst case values for each of the projections? (Do not round intermediate calculations. Round your answers to the nearest whole number (e.g., 32) |
| Â Â Scenario | Unit sales | Variable costs | Fixed costs |
| Â Â Â Base | 360 | $16,300 | $334,000 |
|    Best  |  |  |  |
| Â Â Â Worst | Â | Â | Â |
| (b) |
What are the best- and worst-case OCFs and NPVs with these projections? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) |
| Â | OCF | NPV |
| Â Â Best-case | $ | $ |
| Â Â Worst-case | $ | $ |
| (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 $ .