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You are considering a new product launch. The project will cost $1,800,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 200 units per year; price per unit will be $21,000, variable cost per unit will be $13,500, and fixed costs will be $510,000 per year. The required return on the project is 10 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 ±10 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? (Negative amount should be indicated by a minus sign. Round your NPV answers to 2 decimal places. (e.g., 32.16)) b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. (Negative amount should be indicated by a minus sign. Round your answer to 3 decimal places. (e.g., 32.161)) ΔNPV/ΔFC $ c. What is the cash break-even level of output for this project (ignoring taxes)? (Round your answer to 2 decimal places. (e.g., 32.16)) Cash break-even d-1 What is the accounting break-even level of output for this project? (Round your answer to 2 decimal places. (e.g., 32.16)) Accounting break-even d-2 What is the degree of operating leverage at the accounting break-even point? (Round your answer to 3 decimal places. (e.g., 32.161)) Degree of operating leverage
What is the minimum nominal rate of return you should accept, if you require a 10% real rate of return and the rate of inflation is expected to average 9.70% during the investment period?
What is the present value of $300.00 per year, at a discount rate of 12%, if the first payment is received 4 years from now and the last payment is received 25 years from now?
respond to one selected question giving real-world examples to support all your answers.what does duration measure and
Reliable Gearing currently is all-equity-financed. It has 28,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $380,000 with the proceeds used to bu..
You are evaluating two projects. You may accept only one of them. Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years. Project two will cost $454,000 initially, but will pay $101,000 for the next 10 years. Th..
You have been given the following options for investment. What you have in the account at the end of the period for each of these investments. You can invest $100,000 today at a 2.10% rate compounded daily for 5 years.
We are evaluating a project that costs $1,100,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 42,000 units per year. Calculate the best-case an..
A town has to resurface a section of its roads. There are two options: gravel or going through another company that uses another surfacing technique. The gravel has an initial cost of $200,000 to put down and it costs $15,000 to grade the road on an ..
The annualized 6-month spot rate is 4% and the annualized 12-month spot rate is 6%. The annualized forward rate from the end of 6th month to the end of 12th month is 10%. Develop an arbitrage strategy using the spot rates and the forward rate.
Analog Computers needs to borrow $475,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $475,000 spendable cash?
Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 8.9 percent. The bonds make semiannual payments. If these bonds currently sell for 110 percent of par value, what is the YTM?
You started an education fund for your child. You are expecting him/her to attend college 18 years from now. According to statistics, the expected amount you will need 18 years later should be $300,000. If the fund provides a rate of return of 10% pe..
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