Question
1.We are evaluating a project that costs $645,000, has an three-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
1.We are evaluating a project that costs $645,000, has an three-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 70,000 units per year. Price per unit is $37, variable cost per unit is $21, and fixed costs are $725,000per year. The tax rate is 35 percent, and we require a 15 percent return on this project.
a.Calculate the accounting break-even revenue
b.Calculate the base-case cash flow and NPV.
c.What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs.
d.suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within 10 percent. What is your best scenario OCF and worse scenario OCF?
e.What is the financial break-even point (challenging)
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