You are thinking of new product launch. Project will cost $974,000, have the four-year life, and have no salvage value; depreciation is given as straight-line to zero. Sales are estimated at 280 units per year; price per unit will be $19,000, variable cost per unit will be given as $15,500, and fixed costs will be $326,000 per year. Required return on project is 14%, and relevant tax rate is 35%.
Based on the experience, you think unit sales, fixed cost projections and variable cost, given here are probably correct to within ±10%.
Find best and worst case NPVs with the projections?
Determine base-case NPV?
Determine sensitivity of NPV to changes in fixed costs?