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Upper and lower bounds for projections

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Reference no: EM131222349

You are considering a new product launch. The product will cost $1,700,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 140 units per year; price per unit will be $22,000 variable cost per unit will be $12,500, and fixed cost will be $490,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 32%. The unit sales, variable cost, and fixed cost projections given are probably accurate to with +-10%.

  • What are the upper and lower bounds for these projections?
  • What is the bas NPV?
  • What are the best and worse case scenarios?
  • Calculate the sensitivity of your base-case NPV to changes in fixed costs.
  • What is the accounting break even level of output for this project?

Reference no: EM131222349

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