
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:You are considering a new product launch. The project will cost $900,000, have a 4-year
life, and have no salvage value; depreciation is straight-line to zero. Sales are projected
at 560 units per year; price per unit will be $19,200, variable cost per unit will be
$15,900, and fixed costs will be $950,000 per year. The required return on the project is
12 percent, and the relevant tax rate is 23 percent.
a. The unit sales, variable cost, and fixed cost projections given above 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 amount should be indicated by a minus sign. Do not round
intermediate calculations and round your NPV answers to 2 decimal places, e.g.,
32.16.)
Scenario
Unit sales
Variable cost per unit
Fixed costs
Scenario
Base-case
Best-case
Worst-case
Upper bound
NPV
Lower bound
units
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