You are considering a new product launch. The project will cost $857,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 180 units per year; price per unit will be $19,200, variable cost per unit will be $15,100, and fixed costs will be $345,000 per year. The required return on the project is 11 percent, and the relevant tax rate is 34 percent.
Requirement 1:
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±5 percent.
(a) What are the best and worst case NPVs with these projections? (Do not round intermediate calculations.Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)
(b) What is the base-case NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Requirement 2:
What is the sensitivity of the NPV to changes in fixed costs? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places (e.g., 32.16).)