Question
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.
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