Assume that are the financial manager of a company, which is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 350 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $2 000 000 equipment that has residual value in four years of $200 000 and adding $ 600 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:


Depreciation method: straight line

Variable cost per unit: $11

Cash fixed costs per year $350 000

Discount rate: 10%

Tax Rate: 30%


Do an analysis with cash flows of the project to determine the sensitivity of the project NPV with the following changes in the value drivers:

Unit sales decrease by 10%

Price per unit decreases by 10%

Variable cost per unit increases 10%

Cash fixed cost per year increases by 10%

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