Question
We are evaluating a project that costs $1,140,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over
We are evaluating a project that costs $1,140,000, has a five-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 $34.40, variable cost per unit is $20.65, and fixed costs are $753,000 per year. The tax rate is 35 percent, and we require a return of 10 percent on this project.
Required: Base-case cash flow:
NPV:
Sensitivity of NPV:
If there is a 500-unit decrease in projected sales, how much wuold the NPV drop? Round to 2 decimal places. NPV drop:
Senstivity to OCF:
If there is a $1 decrease in estimated varialbe costs, how much would the increase in OFC be?
Increase in OCF:
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