Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4. A project under consideration costs $500,000, has a five-year life and has no salvage value. Depreciation is straight-line to zero. The firm has made

image text in transcribed
image text in transcribed
4. A project under consideration costs $500,000, has a five-year life and has no salvage value. Depreciation is straight-line to zero. The firm has made the following projections related to this project: 15 points Unit Sales Price Per Unit Variable Cost Per Unit Fixed Costs Base Lower Case Bound 3,000 2,850 $400 $380 $250 $238 $250,000 $237,500 Upper Bound 3,150 $420 $263 $262,500 01:57:21 eBook The required return is 18 percent and the tax rate is 21 percent. No additional investment in net working capital is required. Requirement 1: What are the worst-case and best-case scenarios for this project? (Input unit sales as number of units. Round all other answers to the nearest whole dollar (e.g., 32).) Worst Case Best Case Unit Sales Price Per Unit $ $ Variable Cost Per Unit $ $ Fixed Costs $ Requirement 2: Your analysis of the project's NPV in the "base case" shows a NPV of $59,764. However, your boss has asked you to determine the sensitivity of the project's NPV to potential changes in fixed costs. Using the firm's estimate of the highest possible level of fixed costs, complete the table below and use your results to assess the sensitivity of the project's NPV to changes in fixed costs. (Round all answers except your sensitivity estimate to the nearest whole dollar (e.g., 32). Round the sensitivity estimate to 2 decimal places le.a.. 32.16). Negative amounts should be indicated by a minus sian.) 4. Requirement 1: What are the worst-case and best-case scenarios for this project? (Input unit sales as number of units. Round all other answers to the nearest whole dollar (e.g., 32).) Worst Case Best Case 15 points $ $ Unit Sales Price Per Unit Variable Cost Per Unit Fixed Costs 8 01:57:08 eBook Requirement 2: Your analysis of the project's NPV in the "base case" shows a NPV of $59,764. However, your boss has asked you to determine the sensitivity of the project's NPV to potential changes in fixed costs. Using the firm's estimate of the highest possible level of fixed costs, complete the table below and use your results to assess the sensitivity of the project's NPV to changes in fixed costs. (Round all answers except your sensitivity estimate to the nearest whole dollar (e.g., 32). Round the sensitivity estimate to 2 decimal places (e.g., 32.16). Negative amounts should be indicated by a minus sign.) Sales Variable Costs Fixed Costs Depreciation EBIT Taxes Net Income Operating Cash Flow Net Present Value (NPV) A Sensitivity (ANPV/AFC) $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

CIA Exam Practice Questions Certified Internal Auditor

Authors: The Internal Audit Foundation

1st Edition

163454045X, 978-1634540452

More Books

Students also viewed these Accounting questions