You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation. a. Calculate the following six numbers for this project. Round your answers to two decimal places. (ii) Profitability Index (PI)

You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation. a. Calculate the following six numbers for this project. Round your answers to two decimal places. (ii) Profitability Index (PI)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
ok ot rences You are considering a new product launch. The project will cost $980,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 370 units per year, price per unit will be $15,975, variable cost per unit will be $12,100, and fixed costs will be $635,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 25 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +10 percent. a. What are the best-case and worst-case NPVS with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed…
es 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.g. 32.) Scenario Unit Sales Variable Cost Fixed Costs NPV Base 280 $ 13,250 $ 670,000…
You are considering a new product launch. The project will cost $1,675,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300, variable cost per unit will be $9,400, and fixed costs will be $550,000 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 is the NPV for 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.g. 32.) Scenario Unit Sales Variable Cost Fixed Costs NPV Base 195 24 9,400…
You are considering a new product launch. The project will cost $1,675,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300, variable cost per unit will be $9,400, and fixed costs will be $550,000 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 is the NPV for 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.g. 32.) Scenario Unit Sales Variable Cost Fixed Costs NPV Base 195 $ 9,400 $…
You are considering a new product launch. The project will cost $1,675,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300, variable cost per unit will be $9,400, and fixed costs will be $550,000 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 is the NPV for 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.g. 32.) b. Evaluate the sensitivity of your base-case…
You are considering a new product launch. The project will cost $2,050,000, have a 4-year life, and have no salvage value, depreciation is straight-line to 0. Salles are projected at 170 units per year. price per unit will be $26,000; variable cost per unit will be $17,000; and fixed costs will be $520,000 per year. The required retur on the project is 15%, and the relevant tax rate is 35% a. Based on your experience, you think the unit salles, variable cost, and fixed cost projections given here are probably accurate to within 10%. 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? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the Final NPV answers to 2 decimal places. Omit $ sign in your response) Scenario Base Best MOESC Chit Sales Variable Cost units $ S $ Fixed Costs $ S S S b. Evaluate the sensitivity of your base-case NPV to changes in fixed…
You are considering a new product launch. The project will cost $820,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 210 units per year; price per unit will be $16,400, variable cost per unit will be $11,300, and fixed costs will be $555,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 24 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +10 percent. a. What are the best-case and worst-case NPVs with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A…
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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
You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows: Expected sales: 115,000 units per year Unit price: $220 Variable cost: $132 Fixed cost: $4,890,000 The project will last for 10 years and requires an initial investment of $16.70 million, which will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 30%, and the required rate of return is 12%. However, you recognize that some of these estimates are subject to error. In one scenario a sharp rise in the dollar could cause sales to fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $210. The good news is that fixed costs could be as low as $3,260,000, and variable costs would decline in proportion to sales. a. What is project NPV if all variables are as expected? Note: Do not round intermediate calculations. Enter your answer in thousands not in…
You are considering a new product launch. The project will cost $1.675 million, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300; variable cost per unit will be $9,400; and fixed costs will be $550,000 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 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 answer 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 Upper bound Lower bound Unit sales 214 175 units Variable cost per unit $ 10,340 $ 8,480 Fixed costs $ 605,000 $ 495,000 Scenario…