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I NEED THE ANSWER TO #6 with the work please. number 5 is added because number 6 needs number 5 5. Sensitivity Analysis and Break-Even
I NEED THE ANSWER TO #6 with the work please. number 5 is added because number 6 needs number 5
5. Sensitivity Analysis and Break-Even [LO1,3] We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? Explain what your answer tells you about a 500 -unit decrease in the quantity sold. 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. Scenario Analysis [LO2] In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within in percent. Calculate the best-case and worst-case NPV figures. 5. Sensitivity Analysis and Break-Even [LO1,3] We are evaluating a project that costs $845,000, 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 51,000 units per year. Price per unit is $53, variable cost per unit is $27, and fixed costs are $950,000 per year. The tax rate is 22 percent, and we require a return of 10 percent on this project. a. Calculate the accounting break-even point. What is the degree of operating leverage at the accounting break-even point? b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the quantity sold? Explain what your answer tells you about a 500 -unit decrease in the quantity sold. 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. Scenario Analysis [LO2] In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within in percent. Calculate the best-case and worst-case NPV figures Step by Step Solution
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