Problem
Consider a new project to be launch. The project will cost $1,600,000. It has 4-year life and no salvage value: depreciation is straight-line to zero. Sales are projected at 180 units per year; the price per unit will be $15,000, the variable cost per unit will be $10,000 and fixed costs will be $300300 per year. The required return on the project is 10%. and the tax rate is 30%.
1) Based on what you know. You projected the unit sales, variable cost and fixed cost are probably accurate to within 3:20 percent. Based on this project, prepare the base- case. best-case. and worst-case scenarios. Calculate also the NPV for each case scenario.
2) Find the accounting break-even level of output for this project. Find the degree of operating leverage at the accounting break-even point?