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XVG Ltd is considering a project which costs $750,000.00 and has a five-year life and...

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Finance

XVG Ltd is considering a project which costs $750,000.00 and has a five-year life and no salvage value. Depreciation is straight-line to zero. The required return is 15 percent and the tax rate is 20 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 $200,000. Assuming that the sales price, variable cost and fixed cost are accurate to within 5 percent.

a) What are the upper and lower bounds for these projections?

b) What is the base case NPV?

c) Given the base-case projections what is the accounting break-even sales for the project? Ignore

the taxes.

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