Question
We are evaluating a project that costs $1,422,000, 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 $1,422,000, 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 88,200 units per year. Price per unit is $34.85, variable cost per unit is $21.10, and fixed costs are $762,000 per year. The tax rate is 35 percent, and we require a return of 11 percent on this project.
Calculate the base-case operating cash flow and NPV. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
a) Base-case operating cash flow | $ |
b) NPV | $ |
What is the sensitivity of NPV to changes in the sales figure?
c) Sensitivity of NPV $
If there is a 500-unit decrease in projected sales, how much would the NPV drop?
d) NPV drop $
What is the sensitivity of OCF to changes in the variable cost figure?
e) Sensitivity of OCF $
If there is $1 decrease in estimated variable costs, how much would the increase in OCF be?
f) Increase in OCF $
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