7.

We are evaluating a project that costs $848,000, has an eight-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 62,000 units per year. Price per unit is $40, variable cost per unit is $20, and fixed costs are $625,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.

a.	Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Break-even point

units

b-1	Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.)

Cash flow	$
NPV	$

b-2	What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

?NPV/?Q

$

c.	What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

?OCF/?VC

$