Question
The Fly-By-Night Company is considering a new project, which will cost $38 million and have an estimated life of 8 years. Straight line depreciation will
The Fly-By-Night Company is considering a new project, which will cost $38 million and have an estimated life of 8 years. Straight line depreciation will be used and no salvage value is expected. Sales are projected at 2,437,500 units per year. Price per unit is $32 and variable cost is $18.50 per unit. Fixed costs are $7.5 million. The tax rate is 30% and the required return is 12%. A. Calculate the accounting breakeven B. Calculate the financial breakeven C. Calculate the base-case cashflow and NPV D. Calculate the sensitivity of NPV to a change in sales. If there were a 400,000 unit increase in sales, what would the new NPV be? If there were a 9% decrease in units sold, what would the new NPV be? E. Calculate the sensitivity of operating cashflows to changes in variable costs. If there were a $2.50 decrease in variable costs per unit, what would be the new OCF? If there were a $3.10 increase in variable costs per unit, what would be the new OCF?
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