Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $ 1 , 8 0 0 , 0 0 0 , has a 6 - year life, and

We are evaluating a project that costs $1,800,000, has a 6-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 87,300 units per year. Price per unit is $38.19, variable cost per unit is $23.40,
and fixed costs are $827,000 per year. The tax rate is 24 percent, and we require a return of 9 percent on this project.
a. Calculate the base-case operating cash flow and NPV.
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.
b. What is the sensitivity of NPV to changes in the sales figure?
Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g.,32.161.
c. If there is a 350-unit decrease in projected sales, how much would the NPV change?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your
answer to 2 decimal places, e.g.,32.16.
d. What is the sensitivity of OCF to changes in the variable cost figure?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your
answer to the nearest whole number, e.g.,32.
e. If there is a $1 decrease in estimated variable costs, how much would the OCF change?
Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g.,32.
Answer is complete but not entirely correct.
Need help solving BASE-CASE NPV.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Financial Planning

Authors: Michael A Dalton, Joseph Gillice

3rd Edition

1936602091, 9781936602094

More Books

Students also viewed these Finance questions

Question

2. What are the prospects for these occupations?pg 87

Answered: 1 week ago