You are considering a new product launch. The project will cost $1,400,000, have

Question

You are considering a new product launch. The project will cost $1,400,000, have a 4 year life and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year; price per unit will be $16,000, variable cost per unit will be $9,800 and fixed costs will be $430,000 per year. The required return on the project is 12% and the relevant tax rate is 35%. a. Based on your experience you think the unit sales, variable cost and fixed cost projections given here are probably accurate to within +/- 10%. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case scenarios? b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. c. What is the cash break-even level of output for this project (ignoring taxes)? d. What is the accounting break-even level of output for this project? What is the degree of operating leverage at the accounting break-even point? How do you interpret this number?

Explanation / Answer

Pl read Cramster Rules.. Multiple question not allowed in same post. Make separate posts. I can asnwer all these questions but will do so only when you post them separately.

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