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What are the best case and worst case scenarios

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Reference no: EM132419881

Assume you are considering a new product launch. The project will cost $ 1,40,000/- have a four year life, and have no salvage value, depreciation is straight line to zero. Sales are projected at 170 units per year, price per unit will be $ 17000, Variable cost per unit will be $ 10,500 and fixed cost will be $ 3,80,000 per year. The required return on the project is 12 per cent, and the relevant tax rate is 35 per cent. Answer the following question.

Q1) Based on your experience, you think the unit sales, variable cost and fixed cost projections given here are probably accurate to within 10 per cent. What are the upper and lower bounds for these projections?

Q2) What is the base case NPV? What are the best case and worst case scenarios?

Q3) Evaluate the sensitivity of your base case. NPV to change its in fixed costs

Q4) What is the cash break even level of output for this project (ignoring taxes)?

Reference no: EM132419881

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