Question

You are considering a new product. It will cost $966,000 to launch, have a 3-year life, and no salvage value. Depreciation is straight-line to zero. The required return is 20%, and the tax rate is 30%. Sales are projected at 80 units per year. Price per unit will be $40,000, variable cost per unit is $24,000 and fixed costs are $500,000 per year. Operating cash flows have been calculated for you as 642,600 per year.

- Suppose that the sales units, price per unit, variable cost per unit, and fixed cost projections above are accurate to within 15%. What are the new variables for the best case and worst case scenarios and calculate accounting break even for this project and degree of operating leverage?

Answer #1

International Paper is considering a new product launch. The
project will cost $630,000, have a 5-year life, and have no salvage
value; depreciation is straight-line to zero. Sales are projected
at 160 units per year, price per unit will be $24,000, variable
cost per unit will be $12,000, and fixed costs will be $283,000 per
year. The relevant tax rate is 35 percent. Based on your
experience, you think the unit sales, variable cost, and fixed cost
projections given here...

You are considering a new product launch. The project will cost
$1,232,500, have a five-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 310
units per year; price per unit will be $19,300, variable cost per
unit will be $15,800, and fixed costs will be $329,000 per year.
The required return on the project is 13 percent, and the relevant
tax rate is 35 percent.
Based on your experience, you think the unit...

You are considering a new product launch. The project will cost
$982,000, have a four-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 300
units per year; price per unit will be $19,200, variable cost per
unit will be $15,700, and fixed costs will be $328,000 per year.
The required return on the project is 12 percent, and the relevant
tax rate is 40 percent.
Based on your experience, you think the unit...

Suppose you are considering an investment project that requires
$800.000, has a six-year life, and has a salvage value of $100,000.
Sales volume is projected to be 65,000 units per year. Price per
unit is $63, variable cost per unit is $42, and fixed costs are
$532,000 per year. The depreciation method is a five-year SL and
assume MARR 10%. (a) Determine the break-even sales volume. (b)
Calculate the cash flows of the base case over six years and its...

A project under consideration costs $750,000, has a five-year
life and has no salvage value. Depreciation is Straight-Line to
zero and the Tax Rate is 34 percent. Sales are projected at 500
units per year. Price per unit is $2,500, Variable Cost per unit is
$1,500, and Fixed Costs are $100,000 per year. Suppose you think
that the unit sales, price, variable cost, and fixed cost
projections given here are accurate to within 10 percent either
way. What is the...

We are evaluating a project that costs $786,000, has an
eight-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 65,000 units per year. Price per unit is $48, variable
cost per unit is $25, and fixed costs are $725,000 per year. The
tax rate is 22 percent, and we require a return of 10 percent on
this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $744,000, has a six-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 45,000 units per year. Price per unit is $60, variable
cost per unit is $20, and fixed costs are $740,000 per year. The
tax rate is 35 percent, and we require a return of 18 percent on
this project. Suppose the projections given for price, quantity,...

We are evaluating a project that costs $908,000, has a four-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 87,200 units per year. Price per unit is $34.35,
variable cost per unit is $20.60, and fixed costs are $752,000 per
year. The tax rate is 30 percent, and we require a return of 12
percent on this project.
Suppose the projections given for price, quantity,...

8. You
are considering a new product launch. The project will cost
$680,000, have a four-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 100
units per year, price per unit will be $19,000, variable cost per
unit will be $14,000, and fixed costs will be $150,000 per year.
The required return on the project is 15%, and the relevant tax
rate is 35%. Ignore the half-year rule for accounting for
depreciation. ...

We are evaluating a project that costs $732,000, has a six-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 55,000 units per year. Price per unit is $60, variable
cost per unit is $30, and fixed costs are $640,000 per year. The
tax rate is 35 percent, and we require a return of 12 percent on
this project. Suppose the projections given for price, quantity,...

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