Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $1,350,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over

We are evaluating a project that costs $1,350,000, has a six-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 87,000 units per year. Price per unit is $34.25, variable cost per unit is $20.50, and fixed costs are $750,000 per year. The tax rate is 35 percent, and we require an 11 percent return on this project. Requirement 1: Calculate the base-case cash flow and NPV. (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).) Base-case cash flow $ NPV $ Requirement 2: What is the sensitivity of NPV to changes in the sales figure? (Do not include the dollar sign ($). Round your answer to 3 decimal places (e.g., 32.161).) Sensitivity of NPV $ Requirement 3: If there is a 500 units decrease in projected sales, how much would the NPV drop? (Do not include the dollar sign ($). Input your answer as a positive value. Round your answer to 2 decimal places (e.g., 32.16).) NPV drop $ Requirement 4: What is the sensitivity of OCF to changes in the variable cost figure? (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign.) Sensitivity of OCF $ Requirement 5: If there is $1 decrease in estimated variable costs, how much would the increase in OCF be? (Do not include the dollar sign ($).) Increase in OCF $

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 Health Care Financial Management

Authors: Steven Berger

4th Edition

1118801687, 978-1118801680

More Books

Students also viewed these Finance questions