Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $1,770,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-line to zero over

We are evaluating a project that costs $1,770,000, has a 6-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 $38.13, variable cost per unit is $23.35, and fixed costs are $824,000 per year. The tax rate is 23 percent, and we require a return of 9 percent on this project. (bonus points if you can walk me through how to find this answer on excel, or an HP10b11+ financial calculator thanks in advance!)

a. Calculate the base-case operating cash flow and NPV. Note: 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? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.

c. If there is a 300-unit decrease in projected sales, how much would the NPV change? Note: 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? 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.

e. If there is a $1 decrease in estimated variable costs, how much would the OCF change? Note: 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

Public Finance In Theory And Practice

Authors: Holley Ulbrich

2nd Edition

041558597X, 978-0415585972

More Books

Students also viewed these Finance questions

Question

Explain Coulomb's law with an example

Answered: 1 week ago

Question

What is operating system?

Answered: 1 week ago

Question

What is Ohm's law and also tell about Snell's law?

Answered: 1 week ago