7(a) We are evaluating a project that costs $660,000, has a five-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 69,000 units per year. Price per unit is $58, variable cost per unit is $38, and fixed costs are $660,000 per year. The tax rate is 35 percent, and we require a 12 percent return on this project. a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your final answer to 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 answers 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 final 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 and Negative amount should be indicated by a minus sign.) OCF/VC $

7(b)

In each of the following cases, find the unknown variable. (Do not round intermediate calculations.)

Accounting Break-Even			Unit Price			Unit Variable Cost			Fixed Costs			Depreciation
55,000			$	36		$	16		$	825,000		$
223,000							36			3,600,000			860,000
5,000				90						240,000			60,000

7(c)

B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 65 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.22 million. By going through research, B&B will be able to better target potential customers and will increase the probability of success to 80 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $19.2 million. If unsuccessful, the present value payoff is only $6.2 million. The appropriate discount rate is 13 percent.

Calculate the NPV for the firm if it conducts customer segment research and if it goes to market immediately. (Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answers to 2 decimal places (e.g., 32.16)).

	NPV
Market immediately	$
Research option	$

Should the firm conduct customer segment research or go to the market immediately??

	Market immediately
	Conduct research