What are the best case and the worst case scenarios

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Reference no: EM13265849

GBK, Inc. is considering a new product. The proposal is as follows:
Project cost: $2,000,000
Project life: 5 yrs
Salvage value: zero
Depreciation: straight line to zero
Sales projection: 180 units per year
Price per unit: $20,000
Variable cost per unit will be: $12,400
Fixed costs per year: $490,000
Required return on the project: 10%
Relevant tax rate: 35%
Based on our past experience, the unit sales, variable costs and fixed cost projections are probably accurate to within plus or minus 10%
A] What are the upper and lower bounds for these projections?
B] What is the base case NPV?
C] What are the best case and the worst case scenarios?
D] Evaluate the sensitivity of your base-case NPV to changes in fixed costs.
E] What is the cash break-even level of output for this project (ignoring taxes)?
F] 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?

Reference no: EM13265849

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