A project currently generates sales of $11.5 million, variable costs equal to 40% of sales, and fixed costs of $3.4 million. The firm's tax rate is 40%.
The project will last for 10 years. The discount rate is 12%.
a-1. What is the effect on project NPV, if sales increase from $11.5 million to $13.5 million?
a-2. What is the effect on project NPV, if variable costs increase to 60% of sales?
b. If project NPV under the base-case scenario is $3.4 million, how much can fixed costs increase before NPV turns negative?
c. How much can fixed costs increase before accounting profits turn negative?