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PT Kolam Makara has a project costs $900,000, has a five-year life, and has a salvage value of $130,000. Depreciation is straight-line to zero. The
PT Kolam Makara has a project costs $900,000, has a five-year life, and has a salvage value of $130,000. Depreciation is straight-line to zero. The required return is 14% and tax rate is 34%. Sales are projected at 2350 units per year. Price per unit is $400. Variable cost per unit is $200 and fixed costs are $150,000 per year. It is known that the depreciation expense is $180,000 per year. The engineering department estimates you will need an initial net working capital investment of $50,000. a. Scenario Analysis: Suppose you think that the unit sales, price, variable cost, and fixed cost projections given are accurate to within 7%. 1) What are the upper and lower bounds for these projections? 2) What is the base-case NPV? 3) What are the best- and worst- case scenario NPVs? b. Sensitivity Analysis: What is the sensitivity of OCF to changes in the variable cost figure at base case? C. Break-Even Analysis: Given the base-case projections in the previous problem, what are the cash, accounting, and financial break-even sales levels for this project? d. Operating Leverage: What is the degree of operating leverage at base case
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