Answered step by step
Verified Expert Solution
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
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. a. 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.) 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 300-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 the nearest whole number, e.g., 32.) e. If there is a $1 decrease in estimated variable costs, how much would the OCF change? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. Base-case operating cash flow Base-case NPV b. NPV sensitivity C. NPV change d. OCF sensitivity e. OCF change
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started