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You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (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.) Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. C. What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV Upper bound Lower bound b. ANPV/AFC C. Accounting break-even units

You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (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.) Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. C. What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV Upper bound Lower bound b. ANPV/AFC C. Accounting break-even units

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (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.) Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. C. What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV Upper bound Lower bound b. ANPV/AFC C. Accounting break-even units
Transcribed Image Text:You are considering a new product launch. The project will cost $1,500,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; price per unit will be $18,000, variable cost per unit will be $10,500, and fixed costs will be $450,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 22 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (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.) Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. C. What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Unit sales Variable cost per unit Fixed costs a-2. Base-case NPV Worst-case NPV Best-case NPV Upper bound Lower bound b. ANPV/AFC C. Accounting break-even units
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