You are considering a new product launch. The project will cost $1,006,000, have
ID: 2640496 • Letter: Y
Question
You are considering a new product launch. The project will cost $1,006,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 360 units per year; price per unit will be $19,800, variable cost per unit will be $16,300, and fixed costs will be $334,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 40 percent.
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within
Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within
Explanation / Answer
Answer:-
working note: sales units in the best case = 360 units + 10% of 360 units = 396 units
sales unit in the worst case = 360 units - 10% of 360 units = 324 units
answer:-
working note : depreciation = total cost / no of life
= $ 1,006,000 / 4 = $ 251,500
net present value = total pv - cash outflow
= $ 2,131,074.78 - $ 1,006,000 = $ 1,125,074.78
$1,690,765.26
Net present value = total PV - cash outflow
= $ 1,690765.26 - $ 1,006,000 = $ 684,765.26
Particular Base Best Worst sales unit 360 units 396 units 324 units sales price $19,800 $19,800 $19,800 sales $7,128,000 $7,840,800 $6,415,200 less: variable cost variable price per unit $16,300 $16,300 $16,300 variable costs $5,868,000 $6,454,800 $5,281,200 contribution $1,260,000 $1,386,000 $1,134,000 less: fixed cost $334,000 $334,000 $334,000 Profit $926,000 $1,052,000 $800,000Related Questions
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