You Are Considering a New Product Launch

question 72

Multiple Choice

You are considering a new product launch. The project will have an initial cost for fixed assets of $1,150,000, a three-year life, and no salvage value; depreciation is straight-line to zero. Sales are projected at 230 units per year, price per unit will be $7,500, variable cost per unit will be $3,900, and fixed costs will be $122,000 per year. The required return is 14.5 percent and the relevant tax rate is 24 percent. Based on your experience, you think the unit sales and price are accurate within a ±2 percent range while costs may vary by ±3 percent. What is the worst-case NPV?

• A) −$117,907
• B) $156,446
• C) −$78,517
• D) $162,134
• E) −$118,020

---

Definitions:

Standard Deviation

A measure of the dispersion or spread in a set of data; it quantifies how much the individual data points differ from the mean value.

Mean

The average of a set of numbers, calculated by adding them together and dividing by the count of numbers.

Scores

Values or data points obtained from assessments, tests, or measurements, representing the performance or achievement of an individual or group.

Standard Deviations

A measurement of the amount of variation or dispersion of a set of values, indicating how much the individual values differ from the mean.