Pacific Products Inc. is considering the introduction of a new product, Alpha. The firm has gathered the following information relevant to the project:
Initial fixed capital outlay: $$\$ 120,000$$
Initial working capital outlay: $$\$ 9,800$$
Life of the project: 5 years
Capital recovery at project end: fixed $$\$ 18,000$$; working $$\$ 7,200$$
Sales units forecast: 50,000 units in year 1 , growing at $6 \%$ per annum thereafter Unit selling price: $$\$ 2.75$$
Unit production cost: $$\$ 1.28$$
Annual fixed overhead cost: $$\$ 35,000$$
Annual tax rate of depreciation claimable: $20 \%$ per annum
Annual income tax rate: $38 \%$
Required rate of return: $9 \%$ per annum
For these data:
(a) Calculate an NPV for the project under the given base-case scenario.
(b) Perform sensitivity analyses on the following variables: initial fixed capital outlay, unit selling price, annual sales growth rate, unit production cost.
(c) By the use of Data Tables and appropriate graphs, calculate the break-even points for unit production cost and the required rate of return.
(d) Advise management of the analyses regarding the new product Alpha, and make appropriate investment recommendations.