Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $1.68 million, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero

image text in transcribed
We are evaluating a project that costs $1.68 million, 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 90,000 units per year. Price per unit is $37.95, variable cost per unit is $23.20, and fixed costs are $815,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. a. Calculate the base-case cash flow and NPV. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the sensitivity of NPV to changes in the sales figure? (Do not round Intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. If there is a 500-unit decrease in projected sales, how much would the NPV change? (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) d. What is the sensitivity of OCF to changes in the variable cost figure? (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) If there is a $1 decrease in estimated variable costs, how much would the increase in OCF be? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Base-case cash flow NPV b. NPV sensitivity NPV change d. OCF sensitivity e. Change 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

Banker To The World

Authors: William Rhodes

1st Edition

0071704256, 978-0071704250

More Books

Students also viewed these Finance questions

Question

Why does water vapor in the air condense when the air is chilled?

Answered: 1 week ago