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 at a CCA rate of $20 \%$. 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. Assets will remain in the CCA class after the end of the project.
a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within $\pm$ 10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the bestcase and worst-case scenarios?
b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.
c. What is the PV (financial) break-even level of output for this project?