You are considering a new product launch. The project will cost $980,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 370 units per year; price per unit will be $15,975, variable cost per unit will be $12,100, and fixed costs will be $635,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 25 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +10 percent. a. What are the best-case and worst-case NPVS with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Best-case NPV Worst-case NPV b. Base case NPV e. ANPVIAFC

Intermediate Financial Management (MindTap Course List)
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ISBN:9781337395083
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Chapter12: Capital Budgeting: Decision Criteria
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You are considering a new product launch. The project will cost $980,000, have a 5-year life, and have no salvage value; depreciation
is straight-line to zero. Sales are projected at 370 units per year, price per unit will be $15,975, variable cost per unit will be $12,100,
and fixed costs will be $635,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 25 percent.
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within
+10 percent.
a. What are the best-case and worst-case NPVS with these projections?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers
to 2 decimal places, e.g., 32.16.
b. What is the base-case NPV?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
c. What is the sensitivity of your base-case NPV to changes in fixed costs?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.
a. Best-case NPV
Worst-case NPV
b. Base case NPV
e. ANPVIAFC
Transcribed Image Text:ok ot rences You are considering a new product launch. The project will cost $980,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 370 units per year, price per unit will be $15,975, variable cost per unit will be $12,100, and fixed costs will be $635,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 25 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +10 percent. a. What are the best-case and worst-case NPVS with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Best-case NPV Worst-case NPV b. Base case NPV e. ANPVIAFC
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