Question
Orio Ltd. is evaluating a new project that costs $200000, has a five-year life, and no salvage value. Assume that depreciation is straight-line to zero
Orio Ltd. is evaluating a new project that costs $200000, has a five-year life, and no salvage value. Assume that depreciation is straight-line to zero salvage over the 5-years. Orio requires a return of 10% on such projects. The tax rate is 30 per cent. Sales are projected at 55000 units per year. Price per unit is $22, variable cost per unit is $10 and fixed costs are $100000 per year. a. Calculate the accounting break-even point. b. Calculate the base-case NPV and IRR. Suppose that you think that the sales projection ranges within 15 per cent. Evaluate the sensitivity of NPV to changes in that projection, and describe the feasibility of each case (e.g. whether you will accept the project or not). c. Suppose the projections given all range within 5 per cent except for sales volume, which is ranging within 15 per cent. Calculate the NPV under the best and worst cases
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