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Project Analysis
You are considering a new product launch. The project will cost $820,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 450 units per year; price per unit will be $18,000; variable cost per unit will be $15,400; and fixed costs will be $610,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 35 percent.
a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 610 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios?
b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.
c. What is the accounting break-even level of output for this project?
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Reynolds purchased a patent from Smith co. for $2,000,000 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Reynolds determined that the economic benefits of the pat..
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Wishaw, Inc. produces and sells outdoor equipment. On July 1, 2014, Wishaw, Inc. issued $150,000,000 of 20-year, 12% bonds at a market (effective) interest rate of 9%, receiving cash of $191,403,720. Interest on the bonds is payable semi annually on ..
After obtaining an understanding of entity's internal control and assessing control risk, an auditor of a non public company decided not to perform additional tests of controls.
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