You are considering a new product launch. The project will cost $2,050,000, have a four- 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 $18,900, variable cost per unit will be $12.200, and fixed costs will be $600.000 per year. The required return on the project is 12 percent, and the relevant tax rate is 24 percent.
You are considering a new product launch. The project will cost $2,050,000, have a four- 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 $18,900, variable cost per unit will be $12.200, and fixed costs will be $600.000 per year. The required return on the project is 12 percent, and the relevant tax rate is 24 percent.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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Step 1: Net Present Value:
VIEWStep 2: (a) Determine the base case, best case and worst case NPVs:
VIEWStep 3: (b) Determine the sensitivity of your base-case NPV to changes in fixed costs:
VIEWStep 4: (c) Determine the cash break-even level of output for this project:
VIEWStep 5: (d1) Determine the accounting break-even level of output for this project:
VIEWStep 6: (d2) Determine the degree of operating leverage at the accounting break-even point:
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