Assignment
You are considering a new product. The project will cost $960,000, have a four-year life, and a salvage value of $60,000; depreciation is straight-line to zero book value. Sales are projected at 240 units per year; price per unit will be $25,000; variable cost per unit will be $19,500; and fixed costs will be $830,000 per year. The cost of capital is 15%, and the tax rate is 35%. What is the initial NPV? Calculate the sensitivity of your initial NPV to changes in the fixed costs. You believe the fixed costs could be as low as 800,000 or as high as 860,000.