Reference no: EM132545431

Your company is considering launching a totally new product. The estimates associated with this new product are:

Unit price: $60
Variable costs: $25
Fixed costs: $10,000 per year
Expected sales: 2,000 per year

• Assume that this new product line will require an initial outlay of $200 000, and will last for 8 years, being depreciated down to zero using straight line depreciation.
• The working capital of $30 000 investment will be required at the beginning and to be recovered in the final year of the project.
• In addition, the firm's required rate of return or cost of capital is 10%, while the firm's marginal tax rate is 19%.
• Since this is a new product line, you are not confident in your estimates and would like to know how well you will fare if your estimates on the items listed above are not as expected. Below, x stands for the number of your month in which you were born, e.g. students born in March should use for the analysis.

Perform the scenario analysis, i.e.:

Question 1: Calculate the project's NPV under the "best-case scenario", that is, use the high estimates - unit price x % above expected, variable costs x % less than expected fixed costs x % less than expected, and expected sales x % more than expected,

Question 2: Calculate the project's NPV under the "worst-case scenario", that is, use the low estimates - unit price x % less than expected, variable costs x % above expected, fixed costs x % above expected, and expected sales x % less than expected.