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We are evaluating a project that costs $1,500,000, has a 15-year life, and has a salvage value of $200,000. Assuming the straight-line depreciation method. Sales
We are evaluating a project that costs $1,500,000, has a 15-year life, and has a salvage value of $200,000. Assuming the straight-line depreciation method. Sales are projected at 13,000 units per year. Price per unit is $200, variable cost per unit is $150, and fixed costs are $400,000 per year. We require a 9% return on this project. Required: (1) Calculate the accounting, cash, and financial (that is, NPV) break-even points in terms of quantity. (2) Calculate the base-case cash flow and NPV. Recalculate the project's NPV for a 10% decrease in projected sales. (3) Ignoring the decrease in projected sales in (2), recalculate the project's NPV for a 10% decrease in estimated variable costs. (4) Based on your answers to (2) and (3), to which factor, sales or variable costs, is the project's NPV more sensitive
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