Reference no: EM132515591

Assume that your selected company is considering a potential project with a new product that is expected to sell for an average price of $25 per unit and the company expects it can sell 450 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $2 500 000 equipment that has residual value in four years of $500 000 and adding $ 800 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below: Depreciation method: straight line Variable cost per unit: $15 Cash fixed costs per year $450 000 Discount rate: 12% Tax Rate: 30%. A scenario analysis is needed with cash flows of the assumed project to determine the sensitivity of the project's NPV to different scenarios that are defined in terms of the estimated values for each of the project's value drivers. Please work on two scenarios corresponding to the worst- and bestcase outcomes for the project. You need to provide your results in (a) relevant tables:

Worst case: Unit sales decrease by 20%; price per unit decreases by 20%; variable cost per unit increases by 20 %; cash fixed cost per year increases by $100 000 Best case: Unit sales increase by 20%; price per unit increases by 20%; variable cost per unit decreases by 20%; cash fixed cost per year decreases by $100 000 Based on the scenario analysis outcome, draw relevant conclusion about project NPV's sensitivity.