esYou are considering a new product launch. The project will cost $2,225,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales areprojected at 280 units per year; price per unit will be $19,700, variable cost per unit willbe $13,250, and fixed costs will be $670,000 per year. The required return on the projectis 12 percent, and the relevant tax rate is 21 percent.a. Based on your experience, you think the unit sales, variable cost, and fixed costprojections given here are probably accurate to within ±10 percent. What are theupper and lower bounds for these projections? What is the base-case NPV? What arethe best-case and worst-case scenarios? (A negative answer should be indicated bya minus sign. Do not round intermediate calculations. Round your NPV answers to2 decimal places, e.g., 32.16. Round your other answers to the nearest wholenumber, e.g. 32.)ScenarioUnit SalesVariable CostFixed CostsNPVBase280$13,250$670,000 $Best30811,925603,000855,639.172,428,995.24Worst25214,575737,000-539,673.56b.C.Evaluate the sensitivity of your base-case NPV to changes in fixed costs. (Anegative answer should be indicated by a minus sign. Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)What is the cash break-even level of output for this project (ignoring taxes)? (Do notround intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)d-1. What is the accounting break-even level of output for this project? (Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)d-2. What is the degree of operating leverage at the accounting break-even point? (Donot round intermediate calculations and round your answer to 3 decimal places,

Name: esYou are considering a new product launch. The project will cost $2,
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Description: esYou are considering a new product launch. The project will cost $2,225,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales areprojected at 280 units per year; price per unit will be $19,700, variable

Net Present value : It is used to decide whether to accept the project or to reject the project.If…

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You are considering a new product launch. The project will cost $2,225,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 280 units per year; price per unit will be $19,700, variable cost per unit will be $13,250, and fixed costs will be $670,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.q. 32.)

You are considering a new product launch. The project will cost $2,225,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 280 units per year; price per unit will be $19,700, variable cost per unit will be $13,250, and fixed costs will be $670,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.q. 32.)

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter26: Real Options

Section: Chapter Questions

Problem 3P: Wansley Lumber is considering the purchase of a paper company, which would require an initial...

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