The SuperBig Co. is considering a new project. The project will cost $2.4 million with an estimated life of 6 years. Straight line depreciation will used and no salvage value is expected. Sales are projected at 108,000 units per year. Price per unit is $78 and variable cost is $41. Fixed costs are $850,000. The tax rate is 30% and the required return is 14%.

A.. Calculate the base-case cashflow and NPV. What is the sensitivity of NPV to changes in sales? If there were a 1650 unit decrease in projected sales, what would the new NPV be? If there were a 750 unit increase in projected sales, what would the new NPV be?

B. What is the sensitivity of OCF to changes in variable costs? If there were a $4 increase in variable costs per unit, what would be the expected change in OCF? What would the new OCF be? If there were a $2.25 decrease in variable costs per unit, what would the new expected OCF be?