You are considering a new product launch. The project will cost $1,282,500, have

Question

You are considering a new product launch. The project will cost $1,282,500, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 410 units per year; price per unit will be $20,300, variable cost per unit will be $16,800, and fixed costs will be $339,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 30 percent.

Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within

Explanation / Answer

Particulars/Year 0 1 2 3 5 Sales(A) 8323000 8323000 8323000 8323000 Fixed Cost(B) 339000 339000 339000 339000 Variable Cost

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