Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We are evaluating a project that costs $1,830,000, has a 6 -year life, and has no salvage value. Assume that depreciation is straight-line to zeto

image text in transcribed
We are evaluating a project that costs $1,830,000, has a 6 -year life, and has no salvage value. Assume that depreciation is straight-line to zeto over the life of the project. Sales are projected at 88,600 units per year. Price per unit is $38.25, vatiable cost per unit is $23.45, and fixed costs are $830,000 per year. The tax rate is 25 percent, and we require a return of 9 percent on inis project. 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.9., 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.9., 32.161. c. If there is a 400 - unit decrease in projected sales, how much would the NPV change? Note: A negative onswer should be indicated by o minus sign. Do not round intermediate calculations and round your onswer to 2 decimal places, e.9., 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 calculotions and round your onswer 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

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

Financial Markets And Institutions

Authors: Anthony Saunders, Marcia Millon Cornett

1st International Edition

0071181334, 9780071181334

More Books

Students also viewed these Finance questions