Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $1,160,000, has a ten-year life, and has no salvage value. Assume that depreciation is straight-line to zero over

We are evaluating a project that costs $1,160,000, has a ten-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 44,000 units per year. Price per unit is $45, variable cost per unit is $20, and fixed costs are $626,000 per year. The tax rate is 24 percent, and we require a return of 20 percent on this project. a. Calculate the accounting break-even point. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b-1. Calculate the base-case cash flow and NPV. Note: Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16. b-2. 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. b-3. Calculate the change in NPV if sales were to drop by 500 units. Note: Enter your answer as a positive number. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. 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

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_2

Step: 3

blur-text-image_3

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

Option Volatility And Pricing Advanced Trading Strategies And Techniques

Authors: Sheldon Natenberg

2nd Edition

0071818774, 978-0071818773

More Books

Students also viewed these Finance questions